| التسويق الالكتروني

Insurance Basics

what it does and how it works

Overview

The insurance industry safeguards the assets of its policyholders by transferring risk from an individual or business to an insurance company. Insurance compa-nies act as financial intermediaries in that they invest the premiums they collect for providing this service. Insurance company size is usually measured by net premiums written, that is, premium revenues less amounts paid for reinsurance. There are three main insurance sectors: property/casualty, life/health and health insurance. Property/casualty (P/C) consists mainly of auto, home and commer-cial insurance. Life/health (L/H) consists mainly of life insurance and annuity products. Health insurance is offered by private health insurance companies and some L/H and P/C insurers, as well as by government programs such as Medicare.

Regulation

All types of insurance are regulated by the states, with each state having its own set of statutes and rules. State insurance departments oversee insurer sol-vency, market conduct and, to a greater or lesser degree, review and rule on requests for rate increases for coverage. The National Association of Insurance Commissioners develops model rules and regulations for the industry, many of which must be approved by state legislatures. The McCarran-Ferguson Act, passed by Congress in 1945, refers to continued state regulation of the insurance industry as being in the public interest. Under the 1999 Gramm-Leach-Bliley Financial Services Modernization Act, insurance activities—whether conducted by banks, broker-dealers or insurers—are regulated by the states. However, there have been, and continue to be, challenges to state regulation from some seg-ments of the federal government as well as from some financial services firms.

I.I.I. Insurance Handbook 1

Insurance Basics

Overview

Accounting

Insurers are required to use statutory accounting principles (SAP) when filing annual financial reports with state regulators and the Internal Revenue Service. SAP, which evolved to enhance the industry’s financial stability, is more conservative than the generally accepted accounting principles (GAAP), established by the inde-pendent Financial Accounting Standards Board (FASB). The Securities and Exchange Commission (SEC) requires publicly owned companies to report their financial results using GAAP rules. Insurers outside the United States use standards that dif-fer from SAP and GAAP. As global markets developed, the need for more uniform accounting standards became clear. In 2001 the International Accounting Standards Board (IASB), an independent international accounting standards setting organiza-tion, began work on a set of standards, called International Financial Reporting Standards (IFRS) that it hopes will be used around the world. Since 2001 over 100 countries have required or permitted the use of IFRS.

In 2007 the SEC voted to stop requiring non-U.S. companies that use IFRS to re-issue their financial reports for U.S. investors using GAAP. In 2008 the National Association of Insurance Commissioners began to explore ways to move from statutory accounting principles to IFRS. Also in 2008, the FASB and IASB undertook a joint project to develop a common and improved framework for financial reporting.

Distribution

Property/casualty and life insurance policies were once sold almost exclusively by agents—either by captive agents, representing one insurance company, or by independent agents, representing several companies. Insurance companies selling through captive agents and/or by mail, telephone or via the Internet are called “direct writers.” However, the distinctions between direct writers and independent agency companies have been blurring since the 1990s, when insur-ers began to use multiple channels to reach potential customers. In addition, in the 1980s banks began to explore the possibility of selling insurance through independent agents, usually buying agencies for that purpose. Other distribu-tion channels include sales through professional organizations and through workplaces.

2 I.I.I. Insurance Handbook

Insurance Basics

Auto Insurance

Auto Insurance Basics

Auto insurance protects against financial loss in the event of an accident. It is a contract between the policyholder and the insurance company. The policyhold-er agrees to pay the premium and the insurance company agrees to pay losses as defined in the policy.

Auto insurance provides property, liability and medical coverage:

Property coverage pays for damage to, or theft of, the car.

Liability coverage pays for the policyholder’s legal responsibility to others for bodily injury or property damage.

Medical coverage pays for the cost of treating injuries, rehabilitation and sometimes lost wages and funeral expenses.

Most states require drivers to have auto liability insurance before they can legal-ly drive a car. (Liability insurance pays the other driver’s medical, car repair and other costs when the policyholder is at fault in an auto accident.) All states have laws that set the minimum amounts of insurance or other financial security drivers have to pay for the harm caused by their negligence behind the wheel if an accident occurs. Most auto policies are for six months to a year. A basic auto insurance policy is comprised of six different kinds of coverage, each of which is priced separately (see below).

Bodily Injury Liability

This coverage applies to injuries that the policyholder and family members list-ed on the policy cause to someone else. These individuals are also covered when driving other peoples’ cars with permission. As motorists in serious accidents may be sued for large amounts, drivers can opt to buy more than the state-required minimum to protect personal assets such as homes and savings.

Medical Payments or Personal Injury Protection (PIP)

This coverage pays for the treatment of injuries to the driver and passengers of the policyholder’s car. At its broadest, PIP can cover medical payments, lost wages and the cost of replacing services normally performed by someone injured in an auto accident. It may also cover funeral costs.

Property Damage Liability

This coverage pays for damage policyholders (or someone driving the car with their permission) may cause to someone else’s property. Usually, this means damage to someone else’s car, but it also includes damage to lamp posts, tele-phone poles, fences, buildings or other structures hit in an accident.

I.I.I. Insurance Handbook 3

Insurance Basics

Auto Insurance

Collision

This coverage pays for damage to the policyholder’s car resulting from a col-lision with another car, an object or as a result of flipping over. It also covers damage caused by potholes. Collision coverage is generally sold with a deduct-ible of $250 to $1,000—the higher the deductible, the lower the premium. Even if policyholders are at fault for an accident, collision coverage will reimburse them for the costs of repairing the car, minus the deductible. If the policyholder is not at fault, the insurance company may try to recover the amount it paid from the other driver’s insurance company, a process known as subrogation. If the company is successful, policyholders will also be reimbursed for the deduct-ible.

Comprehensive

This coverage reimburses for loss due to theft or damage caused by something other than a collision with another car or object, such as fire, falling objects, missiles, explosions, earthquakes, windstorms, hail, flood, vandalism and riots, or contact with animals such as birds or deer. Comprehensive insurance is usu-ally sold with a $100 to $300 deductible, though policyholders may opt for a higher deductible as a way of lowering their premium. Comprehensive insur-ance may also reimburse the policyholder if a windshield is cracked or shattered. Some companies offer separate glass coverage with or without a deductible. States do not require the purchase of collision or comprehensive coverage, but lenders may insist borrowers carry it until a car loan is paid off. It may also be a requirement of some dealerships if a car is leased.

Uninsured and Underinsured Motorist Coverage

Uninsured motorist coverage will reimburse the policyholder, a member of the family or a designated driver if one of them is hit by an uninsured or a hit-and-run driver. Underinsured motorist coverage comes into play when an at-fault driver has insufficient insurance to pay for the other driver’s total loss. This cov-erage will also protect a policyholder who is hit while a pedestrian.

4 I.I.I. Insurance Handbook

Insurance Basics

Homeowners Insurance

Homeowners Insurance Basics

Homeowners insurance provides financial protection against disasters. It is a pack-age policy, which means that it covers both damage to property and liability, or legal responsibility, for any injuries and property damage policyholders or their families cause to other people. This includes damage caused by household pets. Damage caused by most disasters is covered but there are exceptions. Standard homeowners policies do not cover flooding, earthquakes or poor maintenance. Flood coverage, however, is available in the form of a separate policy both from the National Flood Insurance Program (NFIP) and from a few private insur-ers. Earthquake coverage is available either in the form of an endorsement or as a separate policy. Most maintenance-related problems are the homeowners’ responsibility.

A standard homeowners insurance policy includes four essential types of coverage. They include:

Coverage for the Structure of the Home

This part of a policy pays to repair or rebuild a home if it is damaged or destroyed by fire, hurricane, hail, lightning or other disaster listed in the policy. It will not pay for damage caused by a flood, earthquake or routine wear and tear. Most standard policies also cover structures that are not attached to a house such as a garage, tool shed or gazebo. Generally, these structures are cov-ered for about 10 percent of the total amount of insurance on the structure of the home.

Coverage for Personal Belongings

Furniture, clothes, sports equipment and other personal items are covered if they are stolen or destroyed by fire, hurricane or other insured disaster. Most companies provide coverage for 50 to 70 percent of the amount of insurance on the structure of a home. This part of the policy includes off-premises coverage. This means that belongings are covered anywhere in the world, unless the poli-cyholder has decided against off-premises coverage. Expensive items like jewelry, furs and silverware are covered, but there are usually dollar limits if they are sto-len. To insure these items to their full value, individuals can purchase a special personal property endorsement or floater and insure the item for its appraised value.

Trees, plants and shrubs are also covered under standard homeowners insur-ance—generally up to about $500 per item. Perils covered are theft, fire, light-ning, explosion, vandalism, riot and even falling aircraft. They are not covered for damage by wind or disease.

I.I.I. Insurance Handbook 5

Insurance Basics

Homeowners Insurance

Liability Protection

Liability coverage protects against the cost of lawsuits for bodily injury or prop-erty damage that policyholders or family members cause to other people. It also pays for damage caused by pets. The liability portion of the policy pays for both the cost of defending the policyholder in court and any court awards—up to the limit of the policy. Coverage is not just in the home but extends to anywhere in the world. Liability limits generally start at about $100,000. However, experts recommend that homeowners purchase at least $300,000 worth of protection. An umbrella or excess liability policy, which provides broader coverage, includ-ing claims for libel and slander, as well as higher liability limits, can be added to the policy. Generally, umbrella policies cost between $200 to $350 for $1 mil-lion of additional liability protection.

Homeowners policies also provide no-fault medical coverage. In the event that someone is injured in a policyholder’s home, the injured person can sim-ply submit medical bills to the policyholder’s insurance company. In this way expenses are paid without a liability claim being filed. This coverage, however, does not pay the medical bills for the policyholder’s own family or pets.

Additional Living Expenses

This pays the additional costs of living away from home if a house is inhabit-able due to damage from a fire, storm or other insured disaster. It covers hotel bills, restaurant meals and other extra living expenses incurred while the home is being rebuilt. Coverage for additional living expenses differs from company to company. Many policies provide coverage for about 20 percent of the insurance on a house. The coverage can be increased for an additional premium. Some companies sell a policy that provides an unlimited amount of loss-of-use cover-age, but for a limited amount of time.

Additional living expense coverage also reimburses homeowners who rent out part of their home for the rent that would have been collected from a ten-ant if the home had not been destroyed.

Types of Homeowners Insurance Policies

There are several types of homeowners insurance policies that differ in the amount of insurance coverage they provide. The different types are fairly standard through-out the country. However, individual states and companies may offer policies that are slightly different or go by other names such as “standard” or “deluxe.” People who rent the homes they live in have specific renters policies.

6 I.I.I. Insurance Handbook

Insurance Basics

Homeowners Insurance

The various types of homeowners insurance policies are listed below.

HO-3: This is the most common policy and protects the home from all perils except those specifically excluded.

HO-1: Limited coverage policy

This “bare bones” policy provides coverage against the first 10 disasters. It is no longer available in most states.

HO-2: Basic policy

A basic policy provides protection against all 16 disasters. There is a version of HO-2 designed for mobile homes.

HO-8: Older home

Designed for older homes, this policy usually reimburses for damage on an actual cash value basis, which means replacement cost less depreciation. Full replacement cost policies may not be available for some older homes.

HO4: Renter

Created specifically for people who rent the home they live in, this policy protects personal possessions and any parts of the apartment that the policyholder owns, such as newly installed kitchen cabinets, against all 16 disasters.

H0-6: Condo/Co-op

A policy for people who own a condo or co-op, it provides coverage for belongings and the structural parts of the building that they own. It protects against all 16 disasters.

What Type of Disasters Are Covered?

Most homeowners policies cover the 16 disasters listed below. Some “bare bones” policies only cover the first 10:

Fire or lightning

Windstorm or hail

Explosion

Riot or civil commotion

Damage caused by aircraft

Damage caused by vehicles

I.I.I. Insurance Handbook 7

Insurance Basics

Homeowners Insurance

Smoke

Vandalism or malicious mischief

Theft

Volcanic eruption

Falling object

Weight of ice, snow or sleet

Accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning, or automatic fire-protective sprinkler system, or from a household appliance

Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioning or automatic fire-protective system

Freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system, or of a household appliance

Sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic component)

Standard Homeowners Policy Exclusions

Standard homeowners policies exclude coverage for flood, earthquake, war, nuclear accident, landslide, mudslide, sinkhole. Some of these exclusions are discussed below.

Floods

Flood damage is excluded under standard homeowners and renters insurance poli-cies. Flood coverage, however, is available in the form of a separate policy both from the National Flood Insurance Program (NFIP) and from a few private insurers. Additional information on flood insurance can be found on the FloodSmart.gov Web site or by calling 888-379-9531. For coverage over and above the $250,000 limit for property and $100,000 for contents provided by the NFIP, excess flood insurance is available from private insurance companies. (See Topic on Flood Insurance on page 47 for further information.)

Tsunamis cause flood damage and are therefore only covered by a flood policy.

Earthquakes

Earthquake coverage can be a separate policy or an endorsement to a home-owners or renters policy. It is available from most insurance companies. In

8 I.I.I. Insurance Handbook

Insurance Basics

Homeowners Insurance

California, it is also available from the California Earthquake Authority, a pri-vately funded, publically managed organization. In earthquake prone states like California, the policy comes with a high deductible.

Damage Resulting from “Faulty, Defective or Inadequate” Maintenance, Workmanship, Construction or Materials

Defective products can include construction materials. An insurance policy will not cover damage due to lack of maintenance, mold, termite infestation and infestation from other pests. It is the policyholder’s responsibility to take rea-sonable precautions to protect the home from damage.

Levels of Coverage

There are three coverage options.

Actual Cash Value

This type of coverage pays to replace the home or possessions minus a deduc-tion for depreciation.

Replacement Cost

This type of coverage pays the cost of rebuilding or repairing the home or replacing possessions without a deduction for depreciation.

Guaranteed/Extended Replacement Cost

An extended replacement cost policy pays a certain percentage, generally 20-25 percent, over the coverage limit to rebuild the home in the event that materials and labor costs are pushed up by a widespread disaster, for example. For exam-ple, if homeowners take out a policy for $100,000, they can get up to an extra $20,000 or $25,000 of coverage.

Some companies offer a guaranteed replacement cost policy, which pays whatever it costs to rebuild the home as it was before the fire or other disaster, even if it exceeds the policy limit. This gives protection against sudden increases in construction costs due to a shortage of building materials after a widespread disaster or other unexpected situations. It generally does not cover the cost

of upgrading the house to comply with current building codes. However, an endorsement (or an addition to) the policy called Ordinance or Law can help pay for these additional costs.

Guaranteed and extended replacement cost policies are more expensive; but can offer excellent financial protection against disasters. This type of coverage, however, may not be available in all states or from all companies.

I.I.I. Insurance Handbook 9

Insurance Basics

Business Insurance

Business Insurance Basics

Most businesses need to purchase at least the following four types of insurance:

Property Insurance

Property insurance compensates a business if the property used in the business is lost or damaged as the result of various types of common perils, such as fire or theft. Property insurance covers not just a building or structure but also the contents, including office furnishings, inventory, raw materials, machinery, computers and other items vital to a business’s operations. Depending on the type of policy, property insurance may include coverage for equipment break-down, removal of debris after a fire or other destructive event, some types of water damage and other losses.

Business Interruption Insurance

Also known as business income insurance, business interruption insurance is a type of property insurance. A business whose property has sustained a direct physical loss such as fire damage or a damaged roof due to a tree falling on it in a windstorm and has to close down completely while the premises are being repaired may lose out to competitors. A quick resumption of business after a disaster is essential. That is why business interruption insurance is so important.

There are typically three types of business interruption insurance. A business can purchase any one or combination of these.

Business Income Coverage: Compensates for lost income if a company has to vacate its premises due to disaster-related damage that is covered under the property insurance policy. Business income insurance covers the profits the company would have earned, based on financial records, had the disaster not occurred. The policy also covers operating expenses, such as electricity, that continue even though business activities have come to a temporary halt.

Extra Income Coverage: Reimburses the company for a reasonable sum of money that it spends, over and above normal operating expenses, to avoid having to shut down during the restoration period.

Contingent Business Interruption Insurance: Protects a businessowner’s earnings following physical loss or damage to the property of the insured’s suppliers or customers, as opposed to its own property.

Damage due to floods, earthquakes and acts of terrorism are generally not covered by standard business property insurance but can be purchased through various markets.

10 I.I.I. Insurance Handbook

Insurance Basics

Business Insurance

Protection Against Flood Damage

Property insurance policies usually exclude coverage for flood damage. Businesses should find out from their local government office or commercial bank whether their business is located in a flood zone and whether their loca-tion has been flooded in the past. Flood insurance is available through the fed-eral government’s National Flood Insurance Program (www.FloodSmart.gov), which is serviced by private carriers, and from a few specialty insurers.

Protection Against Earthquake Damage

Coverage for earthquake damage is excluded in most property insurance poli-cies, including businessowners package policies. Businesses in an earthquake-prone area will need a special earthquake insurance policy or commercial prop-erty earthquake endorsement.

Protection Against Terrorist Attack Losses

Under the Terrorism Risk Insurance Act of 2002 and its extensions, only busi-nesses that purchase optional terrorism coverage are covered for losses arising from terrorist acts. The exception is workers compensation, which covers work-related injuries and deaths including those due to acts of terrorism.

Liability Insurance

Any enterprise can be sued. Customers may claim that the business caused them harm as the result of, for example, a defective product, an error in a service or disregard for another person’s property. Or a claimant may allege that the busi-ness created a hazardous environment. Liability insurance pays damages for which the business is found liable, up to the policy limits, as well as attorneys’ fees and other legal defense expenses. It also pays the medical bills of any peo-ple injured by, or on the premises of, the business.

A Commercial General Liability (CGL) insurance policy is the first line of defense against many common claims. CGL policies cover claims in four basic categories of business liability:

Bodily injury

Property damage

Personal injury (including slander or libel)

Advertising injury (damage from slander or false advertising)

In addition to covering claims listed above, CGL policies also cover the cost of defending or settling claims. General liability insurance policies always state the maximum amount that the insurer will pay during the policy period.

I.I.I. Insurance Handbook 11

Insurance Basics

Business Insurance

There are two major forms of liability insurance policies a business can select:

occurrence and claims made. Both types of policies have their advantages.

Occurrence Policy: An occurrence policy covers a business for harm to others caused by incidents that occurred while a policy is in force, no matter when the claim is filed. For example, a person might sue a business in 2010 for an injury stemming from a fall in 1999. The policy that was in place when the incident occurred (i.e. 1999) will apply, even if the company now has a policy in place with higher limits. Occurrence coverage may not be available in some states or for some industries or professions.

Claims Made Policy: A claims made policy covers the business based on the policy that is in force when the claim is made, regardless of when the incident occurred. In the above example, the limits in the policy in effect in 2010 would apply. Businesses with claims made policies can purchase optional “tail coverage.” Tail coverage enables a business to report claims after the policy has ended for alleged injuries that occurred while the policy was in effect.

Commercial Vehicle Insurance

A commercial auto policy provides coverage for vehicles that are used primar-ily in connection with commercial establishments or business activities. The insurance pays any costs to third parties resulting from bodily injury or property damage for which the business is legally liable up to the policy limits.

While the major coverages are the same, commercial auto policies differs from a personal auto policy in a number of technical respects. They may have higher limits and/or provisions that cover rented and other non-owned vehicles, including employees’ cars driven for company business. Several insurers offer business auto policies geared to owners of small businesses or specific types of businesses.

Workers Compensation Insurance

Employers have a legal responsibility to their employees to make the workplace safe. However, despite precautions, accidents can occur. To protect employers from lawsuits resulting from workplace accidents and to provide medical care and compensation for lost income to employees hurt in workplace accidents, in almost every state businesses are required by law to buy workers compensa-tion insurance. Workers compensation insurance covers workers injured on the job, whether they are hurt on the workplace premises or elsewhere, or in auto accidents while on business. It also covers work-related illnesses. Workers com-

12 I.I.I. Insurance Handbook

Insurance Basics

Business Insurance

pensation provides payments to injured workers, without regard to who was at fault in the accident, for time lost from work and for medical and rehabilitation services. It also provides death benefits to surviving spouses and dependents.

Each state has different laws governing the amount and duration of lost income benefits, the provision of medical and rehabilitation services and how the sys-tem is administered. For example, in most states there are regulations that cover whether the worker or employer can choose the doctor who treats the injuries and how disputes about benefits are resolved.

Workers compensation insurance must be bought as a separate policy. In-home business and businessowners policies (BOPs) are sold as package poli-cies but do not include coverage for workers’ injuries.

Other Types of Business Coverages

The first four coverages discussed below are different types of liability insurance policies available to businesses. The fifth is a form of life insurance. There are also specialized liability policies geared to specific types of businesses.

Errors and Omissions Insurance/Professional Liability

Some businesses involve services such as giving advice, making recommenda-tions, designing things, providing physical care or representing the needs of others, which can lead to being sued by customers, clients or patients claiming that the business’ failure to perform a job properly has injured them. Errors and omissions or professional liability insurance covers these situations. The policy will pay any judgment for which the insured is legally liable, up to the policy limit. It also provides legal defense costs, even when there has been no wrong-doing.

Employment Practices Liability Insurance

Employment practices liability insurance covers, up to the policy limits, dam-ages for which an employer is legally liable such as violating an employee’s civil or other legal rights. In addition to paying a judgment for which the insured is liable, it also provides legal defense costs, which can be substantial even when there has been no wrongdoing.

Directors and Officers Liability Insurance

Directors and officers liability insurance protects directors and officers of corpo-rations or nonprofit organizations if there is a lawsuit claiming they managed the business or organization without proper regard for the rights of others. The policy will pay any judgment for which the insured is legally liable, up to the

I.I.I. Insurance Handbook 13

Insurance Basics

Business Insurance

policy limit. It also provides for legal defense costs, even where there has been no wrongdoing.

Umbrella or Excess Policies

As the name implies, an umbrella liability policy provides coverage over and above a business’s other liability coverages. It is designed to protect against unusually high losses, providing protection when the policy limits of one of the underlying policies have been used up. For a typical business, an umbrella poli-cy would provide protection beyond Its general liability and auto liability poli-cies. If a company has employment practices liability insurance, directors and officers liability, or other types of liability insurance, the umbrella could provide protection beyond those policy limits as well. Cost depends on the nature of the business, its size, the type of risks the business faces and the ways the business implements risk reduction.

Key Person Life Insurance

The loss of a key person can be a major blow to a small business if that person is the founder of the business or is the key contact for customers and suppliers and the management of the business. Loss of the key person may also make the running of the business less efficient and result in a loss of capital. Losses caused by the death of a key employee are insurable. Such policies compensate the business against significant losses that result from that person’s death or disabil-ity. The amount and cost of insurance needed for a particular business depends on the situation and the age, health and role of the key employee. Key employ-

life insurance pays a death benefit to the company when the key employee dies. The policy is normally owned by the company, which pays the premiums and is the beneficiary. The monies from key person insurance can be used to buy back shares in a company from the estate of the deceased, pay a head hunt-ing firm to find a suitable replacement and cover costs or expenses while the business adjusts to the loss.

Package Policies

Commercial insurers sell coverages separately and/or offer policies that combine protection from most major property and liability risks in one package. Package policies are created for types of businesses that generally face the same kind and degree of risk.

Packages for Small Businesses

Smaller companies often purchase a package policy known as the Business-

14 I.I.I. Insurance Handbook

Insurance Basics

Business Insurance

owners Policy, or BOP. A BOP is recommended for most small businesses (usual-ly 100 employees or less), as it is often the most affordable way to obtain broad coverage. BOPs are “off the shelf” policies combining many of the basic coverag-es needed by a typical small business into a standard package at a premium that is generally less than would be required to purchase these coverages separately. Combining both property and liability insurance, a BOP will cover a business in the event of property damage, suspended operations, lawsuits resulting from bodily injury or property damage to others, etc. BOPs do not cover professional liability, auto insurance, workers compensation or health and disability insur-ance. Small businesses will need separate insurance policies to cover professional services, vehicles and employees.

Commercial Multiple Peril Policies

Larger companies might purchase a commercial package policy or customize their policies to meet the special risks they face. Commercial multiple peril poli-cies, often purchased by corporations, bundle property, boiler and machinery, crime and general liability coverage together. Larger firms employee a risk man-ager to help determine the company’s exposure to certain risks.

In-Home Business Policies

There are several insurance options designed to address the special needs of home businesses.

Homeowners Policy Endorsement: Homeowners may be able to add a simple endorsement or rider to their existing homeowners policy to increase coverage.

In-Home Business Policy: An in-home business policy provides more comprehensive coverage for business equipment and liability than a homeowners policy endorsement. Many insurance companies offer insurance policies specifically tailored to small business.

Businessowners Policy (BOP): The home business might be eligible for The Businessowners Policy (BOP), see above. The key to whether a business owner is eligible for a BOP is the size of the premises, the limits of liability required, the type of commercial operation it is and the extent of its off-premises servicing and processing activities. A BOP, like an in-home business policy, covers business property and equipment, loss of income, extra expense and liability; however, the BOP provides these coverages on a much broader scale.

I.I.I. Insurance Handbook 15

Insurance Basics

Life Insurance

Life Insurance Basics

Many financial experts consider life insurance to be the cornerstone of sound financial planning. It can be an important tool in the following situations:

Replace Income for Dependents

If people depend on an individual’s income, life insurance can replace that income if the person dies. The most common example of this is parents with young children. Insurance to replace income can be especially useful if the government- or employer-sponsored benefits of the surviving spouse or domestic partner will be reduced after he or she dies.

Pay Final Expenses

Life insurance can pay funeral and burial costs, probate and other estate admin-istration costs, debts and medical expenses not covered by health insurance.

Create an Inheritance for Heirs

Even those with no other assets to pass on, can create an inheritance by buying a life insurance policy and naming their heirs as beneficiaries.

Pay Federal “Death” Taxes and State “Death” Taxes

Life insurance benefits can pay for estate taxes so that heirs will not have to liq-uidate other assets or take a smaller inheritance. Changes in the federal “death” tax rules through January 1, 2011 will likely lessen the impact of this tax on some people, but some states are offsetting those federal decreases with increas-es in their state-level estate taxes.

Make Significant Charitable Contributions

By making a charity the beneficiary of their life insurance policies, individuals can make a much larger contribution than if they donated the cash equivalent of the policy’s premiums.

Create a Source of Savings

Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner’s request. Since most people make paying their life insurance policy premiums a high priority, buying a cash-value type policy can create a kind of “forced” savings plan. Furthermore, the interest credited is tax deferred (and tax exempt if the money is paid as a death claim).

16 I.I.I. Insurance Handbook

Insurance Basics

Life Insurance

Types of Life Insurance

There are two major types of life insurance: term and whole life.

Term Life

Term insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions. There are two basic types of term life insurance policies: level term and decreasing term. Level term means that the death benefit stays the same throughout the duration of the policy. Decreasing term means that the death benefit drops, usually in one-year incre-ments, over the course of the policy’s term.

Whole Life/Permanent Life

Whole life or permanent insurance pays a death benefit whenever the policy-holder dies. There are three major types of whole life or permanent life insur-ance—traditional whole life, universal life, and variable universal life, and there are variations within each type.

In the case of traditional whole life, both the death benefit and the premi-um are designed to stay the same (level) throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond. The insurance com-pany keeps the premium level by charging a premium that, in the early years, is higher than what is needed to pay claims, investing that money, and then using it to supplement the level premium to help pay the cost of life insurance for older people.

By law, when these “overpayments” reach a certain amount, they must be available to the policyholder as a cash value if he or she decides not to continue with the original plan. The cash value is an alternative, not an additional, ben-efit under the policy. In the 1970s and 1980s, life insurance companies intro-duced two variations on the traditional whole life product: universal life insur-ance and variable universal life insurance.

Some varieties of whole life/permanent life insurance are discussed below.

Universal Life: Universal life, also known as adjustable life, allows more flexibility than traditional whole life policies. The savings vehicle (called a cash value account) generally earns a money market rate of interest. After money has accumulated in the account, the policyholder will also have the option of altering premium payments—providing there is enough money in the account to cover the costs.

I.I.I. Insurance Handbook 17

Insurance Basics

Life Insurance

Variable Life: Variable life policies combine death protection with a savings account that can be invested in stocks, bonds and money market mutual funds. The value of the policy may grow more quickly, but involves more risk. If investments do not perform well, the cash value and death benefit may decrease. Some policies, however, guarantee that the death benefit will not fall below a minimum level.

Variable Universal Life: This type of policy combines the features of variable and universal life policies, including the investment risks and rewards characteristic of variable life insurance and the ability to adjust premiums and the death benefit that is characteristic of universal life insurance.

18 I.I.I. Insurance Handbook

Insurance Basics

Annuities

Annuities Basics

Annuities are financial products intended to enhance retirement security. An annuity is an agreement for one person or organization to pay another a series of payments. Usually the term “annuity” relates to a contract between an indi-vidual and a life insurance company.

There are many categories of annuities. They can be classified by:

Nature of the underlying investment: fixed or variable

Primary purpose: accumulation or pay-out (deferred or immediate)

Nature of payout commitment: fixed period, fixed amount or lifetime

Tax status: qualified or nonqualified

Premium payment arrangement: single premium or flexible premium

An annuity can be classified in several of these categories at once. For example, an individual might buy a nonqualified single premium deferred variable annuity.

In general, annuities have the following features:

Tax Deferral on Investment Earnings

Many investments are taxed year by year, but the investment earnings—capital gains and investment income—in annuities are not taxable until the investor withdraws money. This tax deferral is also true of 401(k)s and IRAs; however, unlike these products, there are no limits on the amount one can put into an annuity. Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs.

Protection from Creditors

People who own an immediate annuity (that is, who are receiving money from an insurance company), are afforded some protection from creditors. Generally the most that creditors can access is the payments as they are made, since the money the annuity owner gave the insurance company now belongs to the company. Some state statutes and court decisions also protect some or all of the payments from those annuities.

A Variety of Investment Options

Many annuity companies offer an array of investment options. For example, individuals can invest in a fixed annuity that credits a specified interest rate, similar to a bank Certificate of Deposit (CD). If they buy a variable annuity, their money can be invested in stocks, bonds or mutual funds. In recent years, annuity companies have created various types of “floors” that limit the extent of investment decline from an increasing reference point.

I.I.I. Insurance Handbook 19

Insurance Basics

Annuities

Taxfree Transfers Among Investment Options

In contrast to mutual funds and other investments made with aftertax money, with annuities there are no tax consequences if owners change how their funds are invested. This can be particularly valuable if they are using a strategy called “rebalancing,” which is recommended by many financial advisors. Under rebal-ancing, investors shift their investments periodically to return them to the proportions that represent the risk/return combination most appropriate for the investor’s situation.

Lifetime Income

A lifetime immediate annuity converts an investment into a stream of pay-ments that last until the annuity owner dies. In concept, the payments come from three “pockets”: The original investment, investment earnings and money from a pool of people in the investors group who do not live as long as actuarial tables forecast. The pooling is unique to annuities, and it is what enables annu-ity companies to be able to guarantee a lifetime income.

Benefits to Heirs

There is a common apprehension that if an individual starts an immediate lifetime annuity and dies soon after that, the insurance company keeps all of the investment in the annuity. To prevent this situation individuals can buy a “guaranteed period” with the immediate annuity. A guaranteed period commits the insurance company to continue payments after the owner dies to one or more designated beneficiaries; the payments continue to the end of the stated guaranteed period—usually 10 or 20 years (measured from when the owner started receiving the annuity payments). Moreover, annuity benefits that pass to beneficiaries do not go through probate and are not governed by the annuity owner’s will.

Types of Annuities

There are two major types of annuities: fixed and variable. Fixed annuities guar-antee the principal and a minimum rate of interest. Generally, interest credited and payments made from a fixed annuity are based on rates declared by the company, which can change only yearly. Fixed annuities are considered “general account” assets. In contrast, variable annuity account values and payments are based on the performance of a separate investment portfolio, thus their value may fluctuate daily. Variable annuities are considered “separate account” assets.

There are a variety of fixed annuities and variable annuities. One example, the equity indexed annuity, is a hybrid of the features of fixed and variable

20 I.I.I. Insurance Handbook

Insurance Basics

Annuities

annuities. It credits a minimum rate of interest, just as other fixed annuities do, but its value is also based on the performance of a specified stock index—usu-ally computed as a fraction of that index’s total return. In December 2008 the Securities and Exchange Commission voted to reclassify indexed annuities (with some exceptions) as securities, not insurance products. Annuities can also be classified by marketing channel, in other words whether they are sold to groups or individuals.

Annuities can be deferred or immediate. Deferred annuities generally accu-mulate assets over a long period of time, with withdrawals usually as a single sum or as an income payment beginning at retirement. Immediate annuities allow purchasers to convert a lump sum payment into a stream of income that the policyholder begins to receive right away.

I.I.I. Insurance Handbook 21

Insurance Basics

Long-Term Care Insurance

Long-Term Care Insurance Basics

Long-term care insurance pays for services to help individuals who are unable to perform certain activities of daily living without assistance, or require supervi-sion due to a cognitive impairment such as Alzheimer’s disease.

Features of Long-Term Care Policies

The best policies pay for care in a nursing home, assisted living facility, or at home. Benefits are typically expressed in daily amounts, with a lifetime maxi-mum. Some policies pay half as much per day for at-home care as for nursing home care. Others pay the same amount, or have a “pool of benefits” that can be used as needed.

Criteria for the Beginning of Payments

The policy should state the various conditions that must be met. They can include:

The Inability to Perform Two or Three Specific “Activities of Daily Living” Without Help

These include bathing, dressing, eating, toileting and “transferring” or being able to move from place to place or between a bed and a chair.

Cognitive Impairment

Most policies cover stroke and Alzheimer’s and Parkinson’s disease, but other forms of mental incapacity may be excluded.

Medical Necessity or Certification by a Doctor that Long-Term Care is Necessary

Most policies have a “waiting period” or “elimination” period. This is a period that begins when an individual first needs long-term care and lasts as long as the policy provides. During the waiting period, the policy will not pay benefits. The policy pays only for expenses that occur after the waiting period is over, if the policyholder continues to need care. In general, the longer the waiting period, the lower the premium for the long-term care policy.

Benefit periods for long-term care may range from two years to a lifetime. Premiums can be kept down by electing coverage for three to four years—longer than the average nursing home stay—instead of a lifetime.

Most long-term care policies pay on a reimbursement (or expense-incurred) basis, up to the policy limits. In other words, if the policy has a $150 per day benefit, but the policyholder spends only $130 per day for a home long-term care provider, the policy will pay only $130. The “extra” $20 each day will, in

22 I.I.I. Insurance Handbook

Insurance Basics

Long-Term Care Insurance

some policies, go into a “pool” of unused funds that can be used to extend the length of time for which the policy will pay benefits. Other policies pay on an indemnity basis. Using the same example as above, an indemnity policy would pay $150 per day as long as the insured needs and receives long-term care ser-vices, regardless of the actual outlay.

Inflation protection is an important feature, especially for people under the age of 65, who are buying benefits that they may not use for 20 years or more. A good inflation provision compounds benefits at 5 percent a year. Without inflation protection, even 3 percent annual inflation will, over 24 years, reduce the purchasing power of a $150 daily benefit to the equivalent of $75.

Six Other Important Policy Provisions

Elimination Period

Under some policies, if the insured has qualifying long-term care expenses on one day during a seven-day period, he or she will be credited with having satisfied seven days toward the elimination period: i.e., the time between an injury and the receipt of payments. This type of provision reflects the way home care is often delivered—some days by professionals and some days by family members.

Guaranteed Renewable Policies

These must be renewed by the insurance company, although premiums can go up if they are increased for an entire class of policyholders.

Waiver of Premium

This provision ensures that no further premiums are due once the policyholder starts to receive benefits.

Third-Party Notification

This provision stipulates that a relative, friend or professional adviser will be notified if the policyholder forgets to pay a premium.

Nonforfeiture Benefits

These benefits keep a lesser amount of insurance in force if the policyholder lets the coverage lapse. This provision is required by some states.

Restoration of Benefits

This provision ensures that maximum benefits are put back in place if the policyholder receives benefits for a time, then recovers and goes for a specified period (typically six months) without receiving benefits.

I.I.I. Insurance Handbook 23

Insurance Basics

Disability Insurance

Disability Insurance Basics

Disabling injuries affect millions of Americans each year. Disability insurance, which complements health insurance, helps replace lost income if an individual is unable to work due to a disability.

There are three basic ways to replace income.

Employer-Paid Disability Insurance

This is required in most states. Most employers provide some short-term sick leave. Many larger employers provide long-term disability coverage as well, typi-cally with benefits of up to 60 percent of salary lasting for a period of up to five years until the age of 65, and in some cases extended for life.

Social Security Disability Benefits

This is paid to workers whose disability is expected to last at least 12 months and is so severe that no gainful employment can be expected.

Individual Disability Income Insurance Policies

Other limited replacement income is available for workers under some circum-stances from workers compensation (if the injury or illness is job-related), auto insurance (if disability results from an auto accident) and the Department of Veterans Affairs. For most workers, even those with some employer-paid cover-age, an individual disability income policy is the best way to ensure adequate income in the event of disability. Workers who buy a private disability income policy can expect to replace from 50 percent to 70 percent of income. Disability benefits paid out on individual disability policies are not taxed; benefits from employer-paid policies are subject to income tax.

Types of Disability Insurance

There are two types of disability policies: Short-term disability and Long-term disability. Short-term policies have a waiting period of 0 to 14 days with a maximum benefit period of no longer than two years. Long-term policies have a waiting period of several weeks to several months with a maximum benefit period ranging from a few years to a lifetime.

Disability policies have two different protection features: noncancelable and guaranteed renewable. Noncancelable means that the policy cannot be canceled by the insurance company, except for nonpayment of premiums. This gives the policyholder the right to renew the policy every year without an increase in the premium or a reduction in benefits. Guaranteed renewable gives the policyhold-er the right to renew the policy with the same benefits and not have the policy

24 I.I.I. Insurance Handbook

Insurance Basics

Disability Insurance

canceled by the company. However, the insurer has the right to increase premi-ums as long as it does so for all other policyholders in the same rating class.

There are several options and factors to consider when purchasing a disabil-ity policy.

Additional Purchase Options

The insurance company gives the policyholder the right to buy additional insur-ance at a later time.

Coordination of Benefits

The amount of benefits policyholders receive from their insurance companies is dependent on other benefits they receive because of the disability. The policy specifies a target amount the policyholder will receive from all the policies com-bined and will make up the difference not paid by other policies.

Cost of Living Adjustment (COLA)

The COLA increases disability benefits over time based on the increased cost of living measured by the Consumer Price Index. Policyholders will pay a higher premium if they select the COLA.

Residual or Partial Disability Rider

This provision allows workers to return to work part-time, collecting part of their salaries and receiving a partial disability payment if they are still partially disabled.

Return of Premium

This provision requires the insurance company to refund part of the premium if no claims are made for a specific period of time declared in the policy.

Waiver of Premium Provision

This clause means that the policyholder does not have to pay premiums on the policy after he or she is disabled for 90 days.

Factors Affecting the Choice of a Disability Policy

Definition of Disability

Some policies pay benefits if workers are unable to perform the customary duties of their own occupation. Others pay only if workers are unable to perform any job suitable for their level of education and experience. Some policies define disability in terms of workers’ occupations for an initial period of two or three years and then continue to pay benefits only if they are unable to perform any occupation. “Own occupation” policies are more desirable, but more expensive.

I.I.I. Insurance Handbook 25

Insurance Basics

Disablity Insurance

Benefit Period

The benefit period is the amount of time policyholders will receive monthly benefits during their lifetimes. Experts usually recommend that the policy pay benefits until at least age 65, at which point Social Security disability will take over. Young people may consider buying a policy offering lifetime benefits because it will still be relatively inexpensive.

Replacement Percentage

A policy that will replace from 60 percent to 70 percent of total taxable earnings is advisable. A higher replacement percentage, if available, is more expensive. Other sources of income should be evaluated before deciding how much disabil-ity coverage is needed.

Coverage for Disability Resulting from Either Accidental Injury or Illness

An accident-only policy is less expensive but does not provide adequate protec-tion. Ideally, both accident and illness coverage should be purchased.

A Cost-of-Living Increase in Benefits

Policies may not pay benefits for a decade or more and should keep pace with increases in the cost of living. (Some companies also offer “indexed” benefits, keeping pace with inflation after benefit payments begin.)

A Policy Paying “Residual” or Partial Benefits

This type of policy is available so that people can work part-time and still receive a benefit making up for lost income. A standard feature in some policies, and added by a rider to others, a residual benefits policy pays partial benefits based on loss of income without an initial period of total disability.

Transition Benefits

Offered by some companies, it can offset financial loss during a post-disability period of rebuilding a business or professional practice.

Ongoing Coverage

A noncancelable policy will continue in-force as long as the premiums are paid; neither the benefit nor the premium can change. A guaranteed renewable policy keeps the same benefits but may cost more over time since the insurer can increase the premium if it is increased for an entire class of policyholders.

Financial Stability

Check the financial stability of insurers through an agent or a ratings firm.

26 I.I.I. Insurance Handbook

These Topics are adapted from papers

regularly updated at www.iii.org/issues_updates.

I.I.I. Insurance Handbook 27

28 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

Captives and Other Risk-Financing Options

Traditionally, businesses and other organizations have handled risk by transfer-ring it to an insurance company through the purchase of an insurance policy or, alternatively, by retaining the risk and allocating funds to meet expected losses through an arrangement known as “self insurance,” in which firms retain rather than transfer risk.

During the liability crisis of the 1980s, when businesses had trouble obtain-ing some types of commercial insurance coverage, new mechanisms for transfer-ring risk developed, facilitated by passage of the Product Liability Risk Retention Act of 1981. These so-called alternative risk transfer (ART) arrangements blend risk transfer and risk retention mechanisms and, together with self insurance, form the alternative market.

Captives—a special type of insurance company set up by a parent company, trade association or group of companies to insure the risks of its owner or own-ers—and risk-retention groups—in which entities in a common industry join together to provide members with liability insurance—were the first mecha-nisms to appear. Other options, including risk retention pools and large deduct-ible plans, a form of self insurance, followed.

ART products, such as catastrophe bonds, weather derivatives and micro-insurance programs are also emerging as an alternative to traditional insurance and reinsurance products.

Alternative Market Mechanisms

Captives

Wholly owned captives are companies set up by large corporations to finance or administer their risk financing needs. If such a captive insures only the risks of its parent or subsidiaries it is called a “pure” captive.

Captives may be established to provide insurance to more than one entity. An association or group of companies may band together to form a captive to provide insurance coverage. Professionals—doctors, lawyers, accountants—have formed many captives over the years. Captives may, in turn, use a variety of reinsurance mechanisms to provide the coverage. In particular, many offshore captives use a “fronting” insurer to provide the basic insurance policy. Fronting typically means that underwriting, claims and administrative functions are handled in the United States by an experienced commercial insurance company, since a captive generally will not want to get involved directly in running the insurance operation. Also, fronting allows a company to show it has an insur-

I.I.I. Insurance Handbook 29

Insurance Topics Updates at www.iii.org/issues_updates

Captives and Other Risk-Financing Options

ance policy with a U.S.-licensed insurance company, which it may need to do for legal and business reasons.

The rent-a-captive concept was introduced in Bermuda 20 years ago and remains a popular alternative market mechanism. Rent-a-captives serve busi-nesses that are unable to capitalize a captive but are willing to assume a portion of their own risk and share in the underwriting profits and investment income. Generally sponsored by insurers or reinsurers, which essentially “rent out” their capital for a fee, the mechanism allows users to obtain some of the advantages of a captive without having the expense of setting up a single parent captive and meeting minimum capital and surplus requirements.

Captives have been expanding into the employee benefits arena since 2003, the year in which the Department of Labor gave final approval to Archer Daniels Midland Co.’s plan to use its Vermont captive to reinsure group life insurance benefits.

While the leading domicile for captives in the U.S. is Vermont, offshore captives covering U.S. risks are predominantly located in Bermuda, where they enjoy tax advantages and relative freedom from regulation. The Cayman Islands, Guernsey, the British Virgin Islands, Luxembourg and Barbados are also significant centers for captives. Vermont is the leading domicile for captives in the United States.

Self Insurance

Self insurance can be undertaken by single companies wishing to retain risk or by entities in similar industries or geographic locations that pool resources to insure each other’s risks.

The use of higher retentions/deductibles is increasing in most lines of insur-ance. In workers compensation many companies are opting to retain a larger portion of their exposure through policies with large deductible amounts of $100,000 or higher. Large deductible programs, which were first introduced in 1989, now account for a sizable portion of the market.

III. Risk Retention Groups

A risk retention group (RRG) is a corporation owned and operated by its mem-bers. It must be chartered and licensed as a liability insurance company under the laws of at least one state. The group can then write insurance in all other states. It need not obtain a license in a state other than its chartering states.

30 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

Captives and Other Risk-Financing Options

Risk Purchasing Groups

Like risk retention groups (RRGs), purchasing groups must be made up of per-sons or entities with like exposures and in a common business. However, where-as RRGs are liability insurance companies owned by their members, purchasing groups purchase liability coverage for their members from admitted insurers, surplus lines carriers or RRGs. Laws in some states prohibit insurers from giv-ing groups formed to purchase insurance advantages over individuals. However, purchasing groups are not subject to so-called “fictitious group” laws, which require a group to have been in existence for a certain period of time or require a group to have a certain minimum number of members. The Risk Retention Act of 1986 specifically provided for purchasing groups to be created to pur-chase liability insurance for members of the sponsoring groups.

Catastrophe Bonds and other Alternative Risk Transfer (ART) Products

A number of alternative risk transfer (ART) products, such as insurance-linked securities and weather derivatives have developed to meet the financial risk transfer needs of businesses. One such product, catastrophe (cat) bonds, risk-based securities sold via the capital markets, developed in the wake of hurri-canes Andrew and Iniki in 1992 and the Northridge earthquake in 1994—mega-catastrophes that resulted in a global shortage of reinsurance (insurance for insurers) for such disasters. Tapping into the capital markets allowed insurers to diversify their risk and expand the amount of insurance available in catas-trophe-prone areas. Zurich Financial’s Kamp Re was the first major catastrophe bond to be triggered. The $190 million bond was triggered by 2005’s Hurricane Katrina, and resulted in a total loss of principal. Catastrophe bonds are now a multibillion dollar industry.

I.I.I. Insurance Handbook 31

Insurance Topics Updates at www.iii.org/issues_updates

Catastrophes: Insurance Issues

The term “catastrophe” in the property insurance industry denotes a natural or man-made disaster that is unusually severe. An event is designated a catastrophe by the industry when claims are expected to reach a certain dollar threshold, currently set at $25 million, and more than a certain number of policyholders and insurance companies are affected.

The magnitude of the damage caused by Katrina and the potential dam-age Hurricane Rita might have caused had it not weakened from an intense Category 5 hurricane has triggered a reexamination, not just among insurers and reinsurers but also among public policy and political leaders, of how the United States deals with the financial consequences of such massive property damage and personal loss.

Disaster losses along the coast are likely to escalate in the coming years, in part because of huge increases in development. One catastrophe modeling company predicts that catastrophe losses will double every decade or so due to growing residential and commercial density and more expensive buildings. Data from the Census Bureau, collected by USA Today, show that in 2006, 34.9 million people were seriously threatened by Atlantic hurricanes, compared with 10.2 million in 1950. Before the 2005 hurricane season, Hurricane Andrew ranked as the single most costly U.S. natural disaster.

Man-made catastrophes such as the attacks on the World Trade Center can also cause huge losses. The attacks led Congress to pass the Terrorism Risk Insurance Act (TRIA) in November 2002. Since then, TRIA has been reauthorized twice. The latest reauthorization, passed at the end of 2007, extends the law to 2014. TRIA provides a federal backstop for commercial insurance losses from terrorist acts, making it easier for insurers to calculate their maximum losses for such a catastrophe and thus to underwrite the coverage, see the topic on Terrorism Risk and Insurance.

The typical homeowners insurance policy covers damage from a fire, windstorms, hail, riots and explosions—as well as other types of loss such as theft and the cost of living elsewhere while the structure is being repaired or rebuilt after being damaged. Commercial property insurance policies generally cover the same causes of loss with some variation, depending on the coverages selected. Flood and earthquake damage are excluded under homeowners poli-cies—separate policies are available—but are covered under the comprehensive portion of the standard auto policy, which more than 75 percent of drivers who buy auto liability insurance purchase.

The insurance industry tracks catastrophes to monitor claim costs, assign-

32 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

Catastrophes: Insurance Issues

ing a number to each catastrophe. Each claim arising from the event is tagged so that total industrywide losses can be tabulated. The term catastrophe is often used in the property insurance industry in a narrow way to mean a catastrophic event that exceeds a dollar threshold in claims payouts. This figure has changed over the years with inflation and the increase in development of areas subject to natural disasters. Starting in 1997 the catastrophe definition was raised from $5 million to $25 million in insured damage.

There have been four catastrophes that fall into the megacatastrophe catego-ry, greatly exceeding the $25 million threshold. The first two, Hurricane Andrew (1992) and the Northridge earthquake (1994), were both watershed events in that they were far more destructive than most experts had predicted a disaster of this type would be. The third, the terrorist attack on the World Trade Center in 2001, altered insurers’ attitudes about man-made risks worldwide. Hurricane Katrina (2005), the fourth catastrophe, is not only the most expensive natural disaster on record but also an event that intensified discussion nationwide about the way disasters, natural and man-made, are managed. It also focused attention on the federal flood insurance program, see the topic on Flood Insurance.

I.I.I. Insurance Handbook 33

Insurance Topics Updates at www.iii.org/issues_updates

Cellphones and Driving

Increased reliance on cellphones has led to a rise in the number of people who use the devices while driving. There are two dangers associated with driving and cellphone use, including text messaging. First, drivers must take their eyes off the road while dialing. Second, people can become so absorbed in their conversations that their ability to concentrate on the act of driving is severely impaired, jeopardizing the safety of vehicle occupants and pedestrians. Since the first law was passed in New York in 2001 banning hand-held cellphone use while driving, there has been debate as to the exact nature and degree of hazard. The latest research shows that while using a cellphone when driving may not be the most dangerous distraction, because it is so prevalent it is by far the most common distraction in crashes and near crashes.

Research: Studies about cellphone use while driving have focused on several different aspects of the problem. Some have looked at its prevalence as the lead-ing cause of driver distraction. Others have looked at the different risks associat-ed with hand-held and hands-free devices. Still others have focused on the seri-ousness of injuries in crashes involving cellphone users and the demographics of drivers who use cellphones. Of increasing concern is the practice of texting.

In January 2010 the National Safety Council (NSC) released a report that estimates that at least 1.6 million crashes (28 percent of all crashes) are caused each year by drivers talking on cellphones (1.4 million crashes) and texting (200,000 crashes). The estimate is based on data of driver cellphone use from the National Highway Traffic Safety Administration and from peer-reviewed research that quantifies the risks using cellphones and texting while driving.

In July 2009 Virginia Tech Transportation Institute released a study show-ing that the risk of texting while driving is far greater than previous estimates showed and far exceeds the hazards associated with other driving distractions. Researchers used cameras in the cabs of trucks traveling long distances over a period of 18 months and found that the collision risk became 23 times higher when the drivers were texting. The research also measured the time drivers stopped looking at the road and used their eyes to send or receive texts. Drivers generally spent nearly five seconds looking at their devices before a crash or near crash, a period long enough for a vehicle to travel more than 100 yards at typical highway speeds.

34 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

Climate Change: Insurance Issues

There is now a consensus among the scientific community that the climate is changing, with potential risk to the global economy, ecology, and human health and well being. But how much of this is due to natural phenomena and how much to the effects of human activity is a matter of debate. Also unknown is the extent to which weather patterns have already been affected.

As assumers of risk, insurers seek to mitigate potential losses every day through a process known as risk management. Since climate change could lead to losses on a scale never before experienced, insurers are not waiting for researchers to produce all the answers. A 2009 report by Ceres, a network of companies concerned about global warming, identified some 244 insurance-related organizations in 29 countries that were working in 2008 to find solu-tions to the threat posed by greenhouse gas emissions, up from 190 groups in 26 countries in 2007. Insurers are also redoubling their efforts in the more traditional areas of risk management, including alerting policyholders to the potential for lawsuits for failure to protect against or disclose possible harm to the environment.

Meanwhile, society’s concern about climate change offers insurers new ave-nues for leadership and new opportunities for innovative products.

Global Warming: When fossil fuels—coal, oil and natural gas—are burned to produce energy, so-called greenhouse gases, largely carbon dioxide, are emitted into the atmosphere where they trap heat. Forests and oceans can absorb some of the carbon. But to avoid the most catastrophic effects of what is predicted to occur, researchers say, carbon emissions must be greatly reduced, hence the push to reduce overall energy use, boost the use of energy from renewable sources such as solar heat and curb the use of paper and other products made from trees, which absorb carbon dioxide in the process of photosynthesis.

Global warming has the potential to affect most segments of the insurance business, including life insurance if rising temperatures lead to an up-tick in death rates. Property losses of all kinds are most likely to increase, and there is the potential for much higher commercial liability losses if shareholders and consumers try to hold businesses responsible for changes to the environment.

Insurers’ Contribution to Lowering Greenhouse Gases: Insurers, like compa-nies in other industries, are promoting strategies to lower greenhouse gas emis-sions. Some insurers have been warning public policy leaders and the general public about the threat of climate change for years, and others were among the

I.I.I. Insurance Handbook 35

Insurance Topics Updates at www.iii.org/issues_updates

Climate Change: Insurance Issues

first to adopt public statements on the environment and climate change and to join business coalitions calling on the federal government to enact legislation to reduce greenhouse gases. Some, particularly reinsurers, are sponsoring research and working with others interested in the same kind of solutions, such as find-ing ways for individuals and society to adapt to extreme weather, particularly in developing countries.

Many insurance companies are committed to reducing their own total greenhouse gas emissions and offsetting the remainder through contributions to reforestation and renewable energy projects. They also encourage their employ-ees to adopt “green” policies in their private lives. Some were involved in proj-ects to reduce greenhouse gases even before such efforts gained widespread pub-lic attention, and many are now reinforcing their policyholders’ desire to reduce their carbon footprints by offering them paperless billing and documentation. Some have upgraded the quality of their Web sites to encourage policyholders to transact business electronically. At least one auto insurer sells policies exclu-sively online.

Insurers are also working on another front: seeking to reduce the incidence and cost of property damage caused by those events that still occur, despite soci-ety’s best efforts to reduce greenhouse gases.

New Products and Business Opportunities: Without insurance the economy could not function. Insurers essentially enable new products and services to be created by assuming the risk of loss. Just as they quickly adapted existing liability insurance policies for horse-drawn carriages, or teams of horses, to auto-mobiles towards the end of the nineteenth century, so they are responding to climate change initiatives at the beginning of the twenty-first century.

Opportunities exist on several fronts. First, there are new risks to insure, including new industries such as wind farms and other alternative fuel facilities, and emerging financial risks such as those involved in carbon trading. Insurance policies related to carbon trading protect those that invest in clean technol-ogy projects against failure of the project to deliver the agreed-upon emission rights. A number of companies are also offering their clients carbon project risk management consulting services. A carbon credit permits the holder to emit one ton of carbon. The Kyoto Protocol and other cap and trade systems now under discussion set ceilings for carbon output and allow those that produce less than the limit to sell credits to those that exceed it. Investors in clean technology projects such as reforestation and renewable energy buy the rights to credits and sell them in the international carbon trading market. Among the risks associated

36 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

Climate Change: Insurance Issues

with purchasing carbon trading rights is that the technology/project designed to reduce carbon emissions will not meet expectations or that the company will become insolvent before it is able to fulfill its contract, leaving the investor without the necessary carbon offsets.

Second, the need to curb global warming has spurred the creation of insur-ance policies that provide incentives to policyholders to contribute to these efforts. These include discounts on auto insurance policies for owning a hybrid car and for driving fewer miles and policies for green building construction.

Auto Insurance Initiatives: Motor vehicles account for more than 25 percent of all U.S. greenhouse gas emissions. Insurance policies such as pay-as-you-drive, which factors mileage driven into the price of insurance, and hybrid car discounts could reduce that amount by more than 10 percent if broadly imple-mented, according to Ceres, a network of companies concerned about global warming. A study by the Brookings Institution suggests that if drivers paid by the mile, driving would drop by about 8 percent.

There are two ways to reduce the greenhouse gas emissions associated with driving. One is to encourage people to purchase vehicles that emit less carbon dioxide into the environment and get more miles per gallon of gasoline. A number of companies offer discounts to people who drive hybrid vehicles— some believe that people who are socially responsible are also more responsible behind the wheel. The other way is to reward people for driving fewer miles, known as pay-as-you-drive (PAYD) auto insurance. Several insurers have devel-oped technology-based discount programs that provide financial incentives to drive fewer miles. Mileage information comes from a special device. In some, it is linked to the car’s odometer and in others it is a wireless sensor that can monitor speed as well as mileage. These programs are offered in a growing num-ber of states. In addition, California and several other states are encouraging the development of PAYD programs.

Insurers are helping to promote sustainable building practices by offering green homeowners and commercial property policies. In addition, they are responding to the growing demand for assistance with energy and emissions-reduction projects with risk management services that address global warming.

“Green” Building Insurance Coverage: Increasingly, homeowners at the lead-ing edge of the environmental sustainability movement are generating their own geothermal, solar or wind power and selling any surplus energy back to the local power grid. Several insurers are supporting this trend by offering a homeowners policy that covers both the income lost when there is a power

I.I.I. Insurance Handbook 37

Insurance Topics Updates at www.iii.org/issues_updates

Climate Change: Insurance Issues

outage from a covered peril and the extra expense to the homeowner of buying electricity from another source. Policies generally cover the cost of getting back online, such as utility charges for inspection and reconnection.

Some insurers offer homeowners insurance policies that, in the event of a fire or other disaster, allow policyholders to rebuild to environmentally respon-sible “green” standards, even if they had not purchased such a policy originally. Green standards, part of the sustainability movement, include energy conserva-tion benchmarks and the use of renewable construction materials. The Green Building Council introduced its Leadership in Energy and Environmental Design (LEED) certification program in 2001. According to Ceres, buildings account for more than one-third of greenhouse gas emissions and green building practices can reduce energy use and emissions by more than 50 percent.

With green commercial building construction expected to rise significantly over the next few years, a growing number of insurers are offering green com-mercial property insurance policies and endorsements, some of which are direct-ed at specific segments of the business community such as manufacturers. The first green commercial policy was introduced in 2006.

In general, the policies allow building owners to replace damaged buildings, whether or not they are already certified green, with green alternatives includ-ing energy efficient electrical equipment and interior lighting, water conserving plumbing, and nontoxic and low odor paints and carpeting. They also may pay for engineering inspections of heating, ventilation, air conditioning systems, building recertification fees, the replacement of vegetative or plant covered roofs and debris recycling. Some cover the income lost and costs incurred when alter-native energy generating equipment is damaged.

38 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

AutoCreditInsuranceScoring

Credit Scoring

The goal of every insurance company is to correlate rates for insurance policies as closely as possible with the actual cost of claims. If insurers set rates too high they will lose market share to competitors who have more accurately matched rates to expected costs. If they set rates too low they will lose money. This con-tinuous search for accuracy is good for consumers as well as insurance compa-nies. The majority of consumers benefit because they are not subsidizing people who are worse insurance risks—people who are more likely to file claims than they are.

The computerization of data has brought more accuracy, speed and effi-ciency to businesses of all kinds. In the insurance arena, credit information has been used for decades to help underwriters decide whether to accept or reject applications for insurance. New advances in information technology have led to the development of insurance scores, which enable insurers to better assess the risk of future claims.

An insurance score is a numerical ranking based on a person’s credit history. Actuarial studies show that how a person manages his or her financial affairs, which is what an insurance score indicates, is a good predictor of insurance claims. Insurance scores are used to help insurers differentiate between lower and higher insurance risks and thus charge a premium equal to the risk they are assuming. Statistically, people who have a poor insurance score are more likely to file a claim.

Insurance scores do not include data on race or income because insurers do not collect this information from applicants for insurance.

The Poor Economy Has Not Had a Negative Impact on Credit Scores:

According to an April 2009 Property Casualty Insurers of America (PCI) release, the recent economic downturn did not have the negative effect on credit scores that some people predicted. Major consumer credit reporting agencies such

as Fair Isaac and TransUnion have reported that average scores remain steady or have improved, possibly because consumers are saving more and paying off debt. Despite the economy and credit crisis, no state has made regulatory changes to insurers’ use of insurance scores, PCI notes.

Federal Activities: The Federal Trade Commission (FTC) has asked nine of the largest homeowners insurance companies to provide information that it says will allow it to determine how consumer credit data are used by the companies in underwriting and rate setting. The Fair and Accurate Credit Transactions Act, passed in 2003, directed the FTC to consult with the Office of Fair Housing and

I.I.I. Insurance Handbook 39

Insurance Topics Updates at www.iii.org/issues_updates

CreditAutoInsuraScoringce

Equal Opportunity on how the use of credit information may affect the avail-ability and affordability of property/casualty insurance, whether the use of cer-tain factors by credit scoring systems could have a disparate impact on minori-ties and, if so, whether the computer models used could be modified to produce comparable results with less negative impact. The study is expected to be final-ized sometime 2010.

In a similar study, the FTC found that auto insurers’ use of insurance credit scores leads to more accurate underwriting of auto insurance policies in that there is a correlation between insurance scores and the likelihood of filing an insurance claim. The FTC report, Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance, released in July 2007, also states that credit scores cannot easily be used as a proxy for race and ethnic origin. In other words, credit scoring predicted risk for members of minority groups in much the same way that it predicted risk for members of nonminority groups.

The Fair and Accurate Credit Transaction Act of 2003 directed the FTC to address the issue of whether the use of credit had a disparate impact on the availability and affordability of insurance for minorities. Based on a poll of con-sumers, the General Accountability Office has recommended that the Treasury and FTC take steps to improve consumers’ understanding of credit scoring and how credit histories are used, targeting in particular those with less education and less experience in obtaining credit.

The Federal Reserve also studied the use of credit scoring. Although looking at credit scoring to quantify risk posed by a borrower rather than an applicant for insurance or a policyholder, the Federal Reserve said in a report issued at the end of August 2007 that credit scores were predictive of credit risk and were not proxies or substitutes for race ethnicity or gender, underscoring the FTC study.

Insurance Scores: Insurance scores are confidential rankings based on credit history information. They are a measure of how a person manages his or her financial affairs. People who manage their finances well tend to also manage other important aspects of their lives responsibly, such as driving a car. Com-bined with factors such as geographical area, previous crashes, age and gender, insurance scores enable auto insurers to price more accurately, so that people less likely to file a claim pay less for their insurance than people who are more likely to file a claim. For homeowners insurance, insurers use other factors com-bined with credit such as the home’s construction, location and proximity to water supplies for fighting fires.

Insurance scores predict the average claim behavior of a group of people with essentially the same credit history. A good score is typically above 760 and

40 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

AutoCreditInsuranceScoring

a bad score is below 600. People with low insurance scores tend to file more claims. But there are exceptions. Within that group, there may be individuals who have stellar driving records and have never filed a claim just as there are teenager drivers who have never had a crash although teenagers as a group have more accidents than people in other age groups.

Credit Report Information—Who Wants It? It is becoming increasingly important to have an acceptable credit record. Whether we like it or not, society equates the ability to manage credit responsibly with responsible behavior, even if individuals have a bad credit record through no fault of their own. Landlords often look at applicants’ credit records before renting apartments to see whether they manage their finances responsibly and are therefore likely to pay their rent on time. Banks and other lenders look at the credit records of loan applicants to find out whether they are likely to have loans repaid. Some employers also look at credit records, especially where employees handle money, and view a good credit record as a measure of maturity and stability.

In some insurance companies, underwriters have long used credit records in cases where additional information was needed. Before the development of automated scoring systems, underwriters would look at the data and make deci-sions, often erring on the overly cautious side that disadvantaged many more people. Automated insurance scoring and underwriting systems eliminate the weaknesses inherent in someone’s personal judgment and have allowed more drivers to be placed in preferred and standard rating classifications, saving them money. With the development of these scoring models, the use of credit-related information in underwriting and rating for many insurers has become routine. Insurers use insurance scores to different extents and in different ways. Most use them to screen new applicants for insurance and price new business.

Why Insurers Need It: Insurers need to be able to assess the risk of loss—the possibility that a driver or a homeowner will have an accident and file a claim— in order to decide whether to insure that individual and what rate to set for the coverage provided. The more accurate the information, the closer the insurance company can come to making appropriate decisions. Where information is insufficient, applicants for insurance may be placed in the wrong risk classifica-tion. That means that some good drivers will pay more than they should for coverage and some bad drivers will pay less than they should. The insurance company will probably collect enough premiums between the two groups to pay claims and expenses, but the good drivers will be subsidizing the bad.

By law in every state, insurers are prohibited from setting rates that unfairly

I.I.I. Insurance Handbook 41

Insurance Topics Updates at www.iii.org/issues_updates

CreditAutoInsuraScoringce

discriminate against any individual. But the underwriting and rating processes are geared specifically to differentiate good risks from bad risks. Since insurance is a business, insurers favor those applicants that are least likely to suffer a loss. One of the key competitive aspects of the personal lines insurance business is the ability to segment risks and price policies accurately according to the likely cost of claims generated by those policies. Insurance scores help insurers accom-plish these objectives.

42 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

Earthquakes: Risk and InsuranceAtoInsuranceIssues

Earthquakes: Risk and Insurance Issues

An earthquake is a sudden and rapid shaking of the earth caused by the break-ing and shifting of rock beneath the earth’s surface. This shaking can sometimes trigger landslides, avalanches, flash floods, fires and tsunamis. Unlike other nat-ural disasters such as hurricanes, there are no specific seasons for earthquakes.

Earthquakes in the United States are not covered under standard homeown-ers or business insurance policies. Coverage is usually available for earthquake damage in the form of an endorsement to a home or business insurance policy. However, insurers that do not sell earthquake insurance may still be impacted by these catastrophes due to losses from fire following a quake. These losses could involve claims for business interruption and additional living expenses as well. Cars and other vehicles are covered for earthquake damage under the com-prehensive part of the auto insurance policy.

In the United States about 5,000 quakes strike each year. Since 1900, earth-quakes have occurred in 39 states and caused damage in all 50. One of the worst catastrophes in U.S. history, the San Francisco Earthquake of 1906, would have caused insured losses of $96 billion, were the quake to hit under current eco-nomic and demographic conditions, according to AIR Worldwide.

The potential cost of earthquakes has been growing because of increasing urban development in seismically active areas and the vulnerability of older buildings, which may not have been built or upgraded to current building codes.

The Northridge earthquake, which struck Southern California on January 17, 1994, was the most costly quake in U.S. history, causing an estimated $20 billion in total property damage, including $12.5 billion in insured losses. In its wake the California Earthquake Authority (CEA) was created in 1996. Fearing insolvency from another massive earthquake, the vast majority of insurers in the state’s homeowners insurance market had severely restricted or ceased writ-ing coverage altogether after Northridge. To ensure the availability of homeown-ers coverage and end a serious threat to the vitality of the state’s housing mar-ket, the California Legislature established the CEA as a publicly managed, largely privately funded entity.

Only about 12 percent of Californians now purchase earthquake coverage, down from about 30 percent in 1996 when the devastating 1994 Northridge quake was still fresh in people’s minds. To encourage more Californians to buy the coverage, the CEA, approved an average 22 percent rate cut, which went into effect July 1, 2006. The CEA says that a sharp drop in the cost of reinsur-ance and several years without a major quake, allowing the buildup reserves, made the cut possible.

I.I.I. Insurance Handbook 43

Insurance Topics Updates at www.iii.org/issues_updates

Earthquakes:AutoInsuranceRisk and Insurance Issues

Losses from Major Recent Earthquakes: At the beginning of 2010 there were two major earthquakes: a 7.0 magnitude quake in Haiti in January and a 8.8 magnitude quake in Chile in February. The Haiti quake killed over 220,000 peo-ple and caused $8 billion dollars in damages, most of it uninsured. The Chile quake, though more powerful, was far less deadly as its epicenter was located in a region with relatively low population density and because Chile’s history of damaging quakes has led to strict building codes. The Chile quake and its associ-ated tsunami caused over $4 billion in insured losses and more than $20 billion in total damages (including insured and uninsured losses), according to Munich Re. It caused about 500 deaths.

44 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

Financial and MarketAuoConditionsInsurance

Financial and Market Conditions

Many forces affect the price, availability and security of the insurance product. Some are external, such as the state of the economy, changes in interest rates and the stock market, regulatory activity, the number and severity of natural disasters, growth in litigation and rising medical costs. Others are internal, such as the level of competition.

Fortunately, insurance companies run their businesses conservatively, as if every day might bring some new disaster, so despite current economic and financial conditions, the industry has been able to function normally. Unlike banks, insurers are not highly leveraged (they generally do not borrow to make investments or to pay claims); they limit the amount of risk they assume to the capital they have on hand; and because they do not sell the risks they assume to another party—they have some “skin in the game”—they must underwrite care-fully or suffer the consequences.

The insurance industry is cyclical. Rates and profits fluctuate depending on the phase of the cycle, particularly in commercial coverages. The profitability cycle may be somewhat different for different types of insurance.

The cycle of the early and mid-1980s was among the most severe that the industry has experienced. That cycle centered on liability insurance. The most recent hard market began early in about 2001 and peaked in early 2004. The industry has been experiencing a soft market due to the poor economy. While there had been some indication that rates were flattening out, industry analysts expect to soft market to continue well into 2010.

The Insurance Cycle: The property/casualty insurance industry has exhibited cyclical behavior for many years, as far back as the 1920s. These cycles are char-acterized by periods of rising rates leading to increased profitability. Following a period of solid but not spectacular rates of return, the industry enters a down phase where prices soften, supply of insurance becomes plentiful and, eventu-ally, profitability diminishes or vanishes completely. In the cycle’s down phase, as results deteriorate, the basic ability of insurance companies to underwrite new business or, for some companies even to renew some existing policies, can be impaired because the capital needed to support the underwriting of risk has been depleted through losses. Cycles vary in their severity.

The insurance industry cycle is not unlike the cycle that occurs in agri-culture, for example, in the wheat and beef markets. Demand for the product in both industries is relatively stable and is relatively unresponsive to price changes, while supply can vary from year to year. This means that when supply

I.I.I. Insurance Handbook 45

Insurance Topics Updates at www.iii.org/issues_updates

FinancialAutoInsuranceandMarket Conditions

increases, lowering the price will not instantly “clear” the market of excess sup-ply. If the price of auto insurance is cut in half, people will still buy only one policy, although they may increase the amount of coverage they purchase.

In the 1950s and 1960s cycles were regular, with a three-year period of soft pricing followed by a three-year period of hard pricing in practically all lines of property/casualty insurance. In the 1970s and 1980s, there were only two cycles, one mainly affecting auto insurance in the mid-1970s and the other in the mid-1980s, affecting commercial liability insurance. The commercial liabil-ity insurance cycle gave rise to the “liability crisis,” when certain types of com-mercial liability coverages, such as insurance for daycare centers, municipalities, ski resorts and any establishment selling liquor, became difficult to obtain. Since that time, with the exception of the difficulty in obtaining medical malpractice insurance in the early part of the last decade, the insurance cycle has had less of an impact on the public.

46 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

FloodAuto Insurance

Flood Insurance

Because of frequent flooding of the Mississippi River during the 1960s and the rising cost of taxpayer funded disaster relief for flood victims, in 1968 Congress created the National Flood Insurance Program (NFIP). It has three mandates: to provide residential and commercial insurance coverage for flood damage, to improve floodplain management and to develop maps of flood hazard zones.

While the comprehensive section of an auto insurance policy covers flood damage to vehicles, there is no coverage for flooding in standard homeowners, renters or commercial property insurance policies. It is available in a separate policy from the NFIP and from a few private insurers. Despite efforts to publi-cize this, many people exposed to the risk of floods still fail to purchase flood insurance.

It was the widespread flooding associated with Hurricane Katrina in 2005 that drew attention to the NFIP and set in motion debate about how to improve it. So far, Congress has not taken steps to significantly revamp the program.

Federal flood insurance is only available where local governments have adopted adequate flood plain management regulations for their floodplain areas as set out by NFIP. About 20,400 communities across the country participate in the program. NFIP coverage is also available outside of the high-hazard areas.

The NFIP law was amended in 1969 to provide coverage for mudslides and again in 1973. Until then, the purchase of flood insurance had been voluntary, with only about one million policies in force. The 1973 amendment put con-straints on the use of federal funds in high-risk floodplains, a measure that was expected to lead to almost universal flood coverage in these zones. The law pro-hibits lenders that are federally regulated, supervised or insured by federal agen-cies from lending money on a property in a floodplain zone when a community is participating in the NFIP, unless the property is covered by flood insurance.

Legislation was enacted in 1994 to tighten enforcement of flood insurance requirements. Regulators can now fine banks with a pattern of failure to enforce the law and lenders can purchase flood insurance on behalf of homeowners who fail to buy it themselves, then bill them for coverage. The law includes a provision that denies federal disaster aid to people who have been flooded twice and have failed to purchase insurance after the first flood.

Buildings constructed in a floodplain after a community has met regula-tions must conform to elevation requirements. When repair, reconstruction or improvement to an older building equals or exceeds 50 percent of its market value, the structure must be updated to conform to current building codes. A 2007 NFIP study on the benefits of elevating buildings showed that due to

I.I.I. Insurance Handbook 47

Insurance Topics Updates at www.iii.org/issues_updates

FloodAutoInsurance

significantly lower premiums homeowners can usually recover the higher con-struction costs in less than five years for homes built in a “velocity” zone, where the structure is likely to be subject to wave damage, and in five to 15 years in a standard flood zone. The Federal Emergency Management Agency (FEMA) esti-mates that buildings constructed to NFIP standards suffer about 80 percent less damage annually that those not built in compliance.

How It Works: The NFIP is administered by FEMA, now part of the Depart-ment of Homeland Security. Flood insurance was initially only available through insurance agents who dealt directly with the federal program. The “direct” policy program has been supplemented since 1983 with a private/public cooperative arrangement, known as “Write Your Own,” through which a pool of insurance companies issue policies and adjust flood claims on behalf of the federal government under their own names, charging the same premium as the direct program. Participating insurers receive an expense allowance for policies written and claims processed. The federal government retains responsibility for underwriting losses. Today, most policies are issued through the Write-Your-Own program but some nonfederally backed coverage is available from the pri-vate market.

The NFIP is expected to be self-supporting (i.e., premiums are set at an actuarially sound level) in an average loss year, as reflected in past experience. In an extraordinary year, as Hurricane Katrina demonstrated, losses can greatly exceed premiums, leaving the NFIP with a huge debt to the U.S. Treasury that it is unlikely to be able to pay back. Hurricane Katrina losses and the percentage of flood damage that was uninsured led to calls for a revamping of the entire flood program.

As with other types of insurance, rates for flood insurance are based on the degree of risk. FEMA assesses flood risk for all the participating communities, resulting in the publication of thousands of individual flood rate maps. High-risk areas are known as Special Flood Hazard Areas, or SFHAs.

Flood plain maps are redrawn periodically, removing some properties previ-ously designated as high hazard and adding new ones. New technology enables flood mitigation programs to more accurately pinpoint areas vulnerable to flooding. As development in and around flood plains increases, run off patterns can change, causing flooding in areas that were formerly not considered high risk and vice versa.

People tend to underestimate the risk of flooding. The highest-risk areas (Zone A) have an annual flood risk of 1 percent and a 26 percent chance of flooding over the lifetime of a 30-year mortgage, compared with a 9 percent risk

48 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

FloodAuto Insurance

of fire over the same period. In addition, people who live in areas adjacent to high-risk zones may still be exposed to floods on occasion. Ninety percent of all natural disasters in this country involve flooding, the NFIP says. Since the incep-tion of the federal program, some 25 to 30 percent of all paid losses were for damage in areas not officially designated at the time of loss as special flood haz-ard areas. NFIP coverage is available outside high-risk zones at a lower premium.

To prevent people putting off the purchase of coverage until waters are rising and flooding is inevitable, policyholders must wait 30 days before their policy takes effect. In 1993, 7,800 policies purchased at the last minute resulted in $48 million in claims against only $625,000 in premiums.

Proposals for Change: The NFIP has four major goals: to decrease the risk of flood losses; reduce the costs and consequences of flooding; reduce the demand for federal assistance; and preserve and restore beneficial floodplain functions.

In a final report published in 2006 by the American Institutes for Research (AIR), which conducted an evaluation of the federal flood insurance program, AIR said that although much had been accomplished, the program fell short of meeting its goals in part because the NFIP did not have the ability to guide development away from floodplains and cannot restore beneficial floodplain functions once they have been impaired. In addition, AIR said, many people still are not covered or not adequately covered for flood damage. AIR also noted that the NFIP was hampered in reaching its goals by insufficient Congressional funding, lack of pertinent data, misperceptions about the nature of the program and the breakdown in coordination among its three major sectors.

A report published by FEMA in 2007 suggests that development patterns should be changed to protect environmentally sensitive areas and that commu-nities in the flood program should be encouraged or required to ban develop-ment in these locations.

Another criticism of the NFIP is that it does not charge enough for cover-age. Among the reasons for the premium shortfall is that the cost of coverage on dwellings that were built before floodplain management regulations were established in their communities is subsidized. As a result, the premiums paid for flood coverage by the owners of these properties reflect only 30 to 40 per-cent of the true risk of loss. In January 2006 FEMA estimated an annual shortfall in premium income of $750 million due to these subsidies. Some subsidized properties also suffer repetitive losses. Repetitive loss properties accounted for about $4.6 billion in claims payments between 1978 and 2004. The AIR report acknowledged that the current system is not eliminating existing damage-prone buildings as quickly as expected.

I.I.I. Insurance Handbook 49

Insurance Topics Updates at www.iii.org/issues_updates

InsuraAutonsuranceFraud

Insurance Fraud

The Insurance Information Institute estimates that fraud accounts for 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses, or about $30 billion a year. This fraud results in higher premiums.

Fraud may be committed at different points in the insurance transaction by different parties: applicants for insurance, policyholders, third-party claimants and professionals who provide services to claimants. Common frauds include “padding,” or inflating actual claims; misrepresenting facts on an insurance application; submitting claims for injuries or damage that never occurred; and “staging” accidents.

Prompted by the incidence of insurance fraud, 41 states and the District of Columbia have set up fraud bureaus (some bureaus have limited powers, and some states have more than one bureau to address fraud in different lines of insurance). These agencies have reported increases in referrals (tips about sus-pected fraud), cases opened, convictions and court-ordered restitution.

Insurance fraud can be “hard” or “soft.” Hard fraud occurs when someone deliberately fabricates claims or fakes an accident. Soft insurance fraud, also known as opportunistic fraud, occurs when people pad legitimate claims, for example, or, in the case of business owners, list fewer employees or misrepresent the work they do to pay lower workers compensation premiums.

People who commit insurance fraud range from organized criminals, who steal large sums through fraudulent business activities and insurance claim mills, to professionals and technicians, who inflate the cost of services or charge for services not rendered, to ordinary people who want to cover their deductible or view filing a claim as an opportunity to make a little money.

Some lines of insurance are more vulnerable to fraud than others. Healthcare, workers compensation and auto insurance are believed to be the sectors most affected.

Insurance fraud received little attention until the 1980s when the rising price of insurance and the growth in organized fraud spurred efforts to pass stronger antifraud laws. Allied with insurers were parties affected by fraud— consumers who pay higher insurance premiums to compensate for losses from fraud; direct victims of organized fraud groups; and chiropractors and other medical professionals who are concerned that their reputations will be tar-nished.

One out of five Americans think it is acceptable to defraud insurance com-panies under certain conditions, according to the Coalition Against Insurance Fraud. The organization released the findings in a 2008 study, “The Four Faces

50 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

InsuranceAutoInsuranceFraud

of Insurance Fraud.” It found that the public is consistently more tolerant of specific insurance frauds today than it was 10 years before.

In addition, studies by the Insurance Research Council show that significant numbers of Americans think it is all right to inflate their insurance claims to make up for insurance premiums they have paid in previous years when they have had no claims or to pad a claim to make up for the deductible they would have to pay.

Insurers must preserve the fine line between investigating suspicious claims and harassing legitimate claimants and the need to comply with the time requirements for paying claims imposed by fair claim practice regulations. All states have unfair claim settlement practice laws on their books to ensure that the parties involved are informed of the progress of investigations and that investigators settle the claim promptly or within a specified amount of time. About 19 states have provisions that provide guidance and protection for inves-tigators by allowing time limit extensions or waivers and detailing what evi-dence is required and to whom the evidence should be made available.

Insurers’ Antifraud Measures: The legal options of an insurance company that suspects fraud are limited. The insurer can only inform law enforcement agencies of suspicious claims, withhold payment and collect evidence for use in a court. The success of the battle against insurance fraud therefore depends on two elements: the level of priority assigned by legislators, regulators, law enforcement agencies and society as a whole to the problem and the resources devoted by the insurance industry itself. To that end most insurers have estab-lished special investigation units (SIUs). These entities help identify and investi-gate suspicious claims.

Insurers have also created a national fraud academy. A joint initiative of the Property Casualty Insurers Association of America, the FBI, National Insurance Crime Bureau (NICB) and the International Association of Special Investigating Units, it is designed to fight insurance claims fraud by educating and training fraud investigators. It offers online classes under the leadership of the NICB.

I.I.I. Insurance Handbook 51

Insurance Topics Updates at www.iii.org/issues_updates

TheAutoLiabilityInsuranceSystem and Medical Malpractice

The Liability System and

Medical Malpractice Insurance Issues

Litigiousness has become a societal problem in the United States. The tort sys-tem cost $254.7 billion in 2008 in direct costs, which translates into $838 per person, and many billions of dollars more in indirect costs, according to Towers Perrin’s most recent tort costs study. U.S. consumers pay directly for the high cost of going to court through higher liability insurance premiums because lia-bility insurance rates reflect what insurance companies pay out for their policy-holders’ legal defense and any judgments against them. And they pay indirectly in higher prices for goods and services since businesses pass on to consumers the expenses they incur in protecting themselves against lawsuits, including the cost of commercial liability insurance.

Beginning in the 1980s, in an effort to reduce litigation costs, business groups and others mounted a campaign to reform tort law. Tort law is the basis for the U.S. liability system. Most reforms have taken place on the state level and during the last decade all but a handful of states passed significant tort law reforms. However, some have been overturned by the courts.

Many reform efforts have focused on medical malpractice issues. Medical malpractice insurance covers doctors and other professionals in the medical field for liability claims arising from their treatment of patients.

The cost of medical malpractice insurance began to rise in the early 2000s after a period of essentially flat prices. Rate increases were precipitated in part by the growing size of claims, particularly in urban areas. Among the other factors driving up prices was a reduced supply of available coverage as several major insurers exited the medical malpractice business because of the difficulty of making a profit.

New research suggests that premium increases may be moderating but, for any significant turnaround to take root, major reforms in the delivery of medi-cal care that focus on patient safety need to occur, industry observers say.

State Tort Reform Issues

Caps in Noneconomic Damages: According to the National Conference of State Legislatures, 30 states, the Virgin Islands and Puerto Rico limit jury awards in malpractice cases. In the past few years, a number court have ruled against such limits. In Georgia, the Supreme Court ruled that a 2005 state law that lim-ited jury awards for pain and suffering in malpractice cases to $350,000 improp-erly interfered with a jury’s duty to determine damages in a civil lawsuit. In the decision Chief Justice Carol Hunstein said that limits in any amount violate the

52 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

The Liability System and MedicalAutoMalpracticeInsuran

right to trial by jury. In Illinois, the Supreme Court overturned the state’s 2005 medical malpractice statute, which capped noneconomic (pain and suffering) medical malpractice awards at $500,000 in lawsuits against physicians and $1 million for hospitals. The court ruled that the law violated the state’s constitu-tional principle of separation of powers in that lawmakers had made decisions that should be made by judges and juries.

Some states, such as Maryland, are deciding to retain their caps when chal-lenged.

Arbitration: To keep small disputes out of the courts, insurers are increasingly turning to arbitration. The nation’s largest arbitration provider, nonprofit Arbi-tration Forums, resolved more than 520,000 inter-insurance disputes in 2009 valued at $2.5 billion, for a savings in litigation costs of $700 million. Disputes leading to arbitration typically arise when insurance or self-insured companies believe their policyholders or employees are not at fault or due to disagreement over the percentage of liability or the amount of damages. More than 85 percent of these disputes involve auto collisions.

Tort Liability Environment: In December 2009 the American Tort Reform Association (ATRA) released its annual list of states and counties characterized as “Judicial Hellholes,” places with courts that have a disproportionately harm-ful impact on civil litigation. ATRA explains that personal injury lawyers seek out these places as targets for their efforts to expand liability and develop new opportunities for litigation. ATRA’s newest list includes six Judicial Hellholes, including holdovers South Florida; West Virginia; Cook County, Illinois; and Atlantic County, New Jersey, and New Mexico appellate courts and New York City, which are new on the list. ATRA highlights several reforms that can help restore balance to these jurisdictions. They include stopping venue shopping (looking for jurisdictions where juries are favorable to plaintiffs), imposing sanctions for bringing frivolous lawsuits, stemming abuse of consumer laws, ensuring that noneconomic damage awards serve a compensatory purpose, and strengthening rules to promote sound science in the courtroom.

I.I.I. Insurance Handbook 53

Insurance Topics Updates at www.iii.org/issues_updates

MicroinsuranceAutoI

Microinsurance

A growing number of insurers are tapping into markets in developing countries through microinsurance projects, which provide low-cost insurance to individu-als generally not covered by traditional insurance or government programs.

Microinsurance products tend to be much less costly than traditional products and thus extend protection to a much wider market. The approach is an out-growth of the microfinancing projects developed by Bangladeshi Nobel Prize-winning banker and economist Muhammad Yunus, which helped millions of low-income individuals in Asia and Africa to set up businesses and buy houses. American International Group Inc. (AIG) was one of the first companies to offer microinsurance and began selling policies in Uganda in 1997. Swiss Re, Munich Re, Allianz and Zurich Financial Services have also entered the microinsurance arena. Disasters such as the 2005 tsunami in Indonesia and the 2010 Haiti earth-quake have demonstrated the need for insurance in many regions, prompting insurers to develop new products. While the coverage is often geared to protec-tion from natural disasters, there are also programs covering life/health risks as well.

With limited growth prospects in the insurance markets of developed countries, which are largely saturated, insurers see microinsurance in emerging economies as presenting significant potential for growth and profitability. A 2009 Swiss Re report on world insurance markets found that premium growth in emerging markets far outpaced growth in industrialized countries in 2008. The study identified the following regions as “emerging markets”: Latin America, Central and Eastern Europe, South and East Asia, the Middle East (excluding Israel) and Central Asia, Turkey and Africa.

In 2009 the International Association of Insurance Supervisors, the World Bank, the International Labor Organization and other multilateral groups launched a program to improve access to insurance in emerging and under-served markets called the “Access to Insurance Initiative.” Also in 2009 rep-resentatives from over 60 countries participated in the Fifth International Microinsurance Conference, which was organized by the reinsurer Munich Re and the Microinsurance Network, a joint effort of aid organizations, multilateral agencies, insurers, policymakers and academics.

54 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

No-Fault Auto Insurance and Other Auto LiabilityAutoInsuranceSystems

No-Fault Auto Insurance and Other Auto Liability Systems

State auto liability insurance laws fall into four broad categories: no-fault, choice no-fault, tort liability and add-on. The major differences are whether there are restrictions on the right to sue and whether the policyholder’s own insurer pays first-party benefits, up to the state maximum amount, regardless of who is at fault in the accident. These alternative systems have evolved over time as con-sumers, regulators and insurers have sought ways to lower the cost and speed up the delivery of compensation for auto accidents.

The term “no-fault” auto insurance is often used loosely to denote any auto insurance program that allows policyholders to recover financial losses from their own insurance company, regardless of fault. But in its strictest form no-fault applies only to state laws that both provide for the payment of no-fault first-party benefits and restrict the right to sue, the so-called “limited tort” option. The first-party (policyholder) benefit coverage is known as personal injury protection (PIP).

Under current no-fault laws, motorists may sue for severe injuries and for pain and suffering only if the case meets certain conditions. These conditions, known as a threshold, relate to the severity of injury. They may be expressed in verbal terms (a descriptive or verbal threshold) or in dollar amounts of medical bills, a monetary threshold. Some laws also include minimum requirements for the days of disability incurred as a result of the accident. Because high threshold no-fault systems restrict litigation, they tend to reduce costs and delays in pay-ing claims. Verbal thresholds eliminate the incentive to inflate claims that may exist when there is a dollar “target” for medical expenses. However, in some states the verbal threshold has been eroded over time by broad judicial interpre-tation of the verbal threshold language, and PIP coverage has become the target of abuse and fraud by dishonest doctors and clinics that bill for unnecessary and expensive medical procedures, pushing up costs.

Currently 12 states and Puerto Rico have no-fault auto insurance laws. Florida, Michigan, New Jersey, New York and Pennsylvania have verbal thresholds. The other seven states—Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, North Dakota and Utah—use a monetary threshold. Three states have a “choice” no-fault law. In New Jersey, Pennsylvania and Kentucky, motor-ists may reject the lawsuit threshold and retain the right to sue for any auto-related injury.

I.I.I. Insurance Handbook 55

Insurance Topics Updates at www.iii.org/issues_updates

NoAuto-FaultInsuranceAutoInsurance and Other Auto Liability Systems

The Different Auto Insurance Systems

No-fault: The no-fault system is intended to lower the cost of auto insurance by taking small claims out of the courts. Each insurance company compensates its own policyholders (the first party) for the cost of minor injuries, regardless of who was at fault in the accident. (The second party is the insurance company and the third is the other party or parties hurt as a result of the accident.)

These first-party benefits, known as personal injury protection (PIP), are a mandatory coverage in true no-fault states. The extent of coverage varies by state. In states with the most comprehensive benefits, a policyholder receives compensation for medical fees, lost wages, funeral costs and other out-of-pocket expenses. The major variations involve dollar limits on medical and hospital expenses, funeral and burial expenses, lost income and the amount to be paid a person hired to perform essential services that an injured non-income producer is unable to perform.

Drivers in no-fault states may sue for severe injuries if the case meets certain conditions. These conditions are known as the tort liability threshold and may be expressed in verbal terms such as death or significant disfigurement (verbal threshold) or in dollar amounts of medical bills (monetary threshold).

Choice no-fault: In choice no-fault states, drivers may select one of two options: a no-fault auto insurance policy or a traditional tort liability policy. In New Jersey and Pennsylvania the no-fault option has a verbal threshold. In Ken-tucky there is a monetary threshold.

Tort liability: In traditional tort liability states, there are no restrictions on lawsuits. A policyholder at fault in a car crash can be sued by the other driver and by the other driver’s passengers for the pain and suffering the accident caused as well as for out-of-pocket expenses such as medical costs.

Add-on: In add-on states, drivers receive compensation from their own insur-ance company as they do in no-fault states, but there are no restrictions on lawsuits. The term “add-on” is used because in these states first-party benefits have been added on to the traditional tort liability system. In add-on states, first-party coverage may not be mandatory and the benefits may be lower than in true no-fault states.

56 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

AutoRegulationInsrance

Regulation

Insurance is regulated by the individual states. The move to modernize insur-ance regulation is being driven in part by the globalization of insurance services. Some large U.S. companies that operate in other countries support the concept of a federal system that provides one-stop regulatory approval while others believe the merits of a state system outweigh the virtues of a single national regulator. As a result of discussions about the merits of each system, states are making it easier for insurers to respond quickly to market forces. States monitor insurance company solvency. One important function related to this is oversee-ing rate changes. Rate making is the process of calculating a price to cover the future cost of insurance claims and expenses, including a margin for profit. To establish rates, insurers look at past trends and changes in the current environ-ment that may affect potential losses in the future. Rates are not the same as premiums. A rate is the price of a given unit of insurance—$2.50 per $1,000

of earthquake coverage, for example. The premium represents the total cost of many units. If the price to rebuild a house is $150,000, the premium would be 150 x $2.50. Rates vary according to the likelihood and potential size of loss.

Using the example of earthquake insurance, rates would be higher near a fault line and for a brick house, which is more susceptible to damage, than a frame one.

While the regulatory processes in each state vary, three principles guide every state’s rate regulation system: that rates be adequate (to maintain insur-ance company solvency), but not excessive (not so high as to lead to exorbitant profits), nor unfairly discriminatory (price differences must reflect expected claim and expense differences). Recently, in auto and home insurance, the twin issues of availability and affordability, which are not explicitly included in the guiding principles, have been assuming greater importance in regulatory decisions.

In line with these principles, states have adopted various methods of regu-lating insurance rates, which fall roughly into two categories: “prior approval” and “competitive.” This does not mean there is no competition in states using a prior approval system. Most approved rates in prior approval states are the rates used, but in some cases, particularly in commercial coverages, companies com-pete at rates below these approved ceilings.

Regulation Modernization

Increasingly, even in the most regulated states, officials are relying on competi-tion among insurance companies to keep rates down and are modernizing and

I.I.I. Insurance Handbook 57

Insurance Topics Updates at www.iii.org/issues_updates

RegulationAutoInsurance

streamlining the rate setting process.

The move to modernize insurance regulation is being driven in part by the globalization of insurance services. Some large U.S. companies that operate in other countries support the concept of a federal system that provides one-stop regulatory approval while others believe the merits of a state system outweigh the virtues of a single national regulator. As a result of discussions about the merits of each system, states are making it easier for insurers to respond quickly to market forces. Since 2009, various pieces of legislation have been introduced in Congress that respond to a number of concerns: lack of an entity at the fed-eral level that can represent insurance interests, particularly in the discussion of international issues; the need for better oversight of systemic risk—the inter-connectedness of the risk assumed by a few large financial services companies whose failure could bring down the entire financial system; and the need to streamline the regulation of reinsurers and surplus lines insurers.

For example, in Georgia, a law was signed in May 2008 that allows auto insurance companies to adjust most rates without the prior approval of the insurance commissioner. Georgia joins at least 30 other states that let rates more closely reflect competition in the marketplace

Type of State Rating Laws

Prior Approval: The insurer must file rates, rules, etc. with state regulators. Depending on the statute, the filing becomes effective when a specified waiting period elapses (if the state regulator does not take specific action on the filing, it is deemed approved automatically) or the state regulator formally approves the filing. A state regulator may disapprove a filing at any time if it is not in compli-ance with the law. The state regulator normally must hold a hearing to establish noncompliance.

Modified Prior Approval: This is a hybrid of “prior approval” and “file and use” laws. If the rate revision is based solely on a change in loss experience then “file and use” may apply. However, if the rate revision is based on a change in expense relationships or rate classifications, then “prior approval” may apply. A state regulator may disapprove a filing at any time if it is not in compliance with the law. The state regulator normally must hold a hearing to establish non-compliance.

Flex Rating: The insurer may increase or decrease a rate within a “flex band,” or range, without approval of the state regulator. Generally, either “file and use” or “use and file” provisions apply. Generally, the insurer must file rate increases

58 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

AutoRegulationInsrance

or decreases that fall outside the established “flex band” with the state regula-tor for approval. Typically, “prior approval” provisions apply. The “flex band” is set either by statute or by the state regulator. A state regulator may disapprove a filing at any time if it is not in compliance with the law. The state regulator normally must hold a hearing to establish noncompliance.

File and Use: The insurer must file rates, rules, etc. with the state regulator. The filing becomes effective immediately or on a future date specified by the filer. A state regulator may disapprove a filing at any time if it is not in compli-ance with the law. The state regulator normally must hold a hearing to establish noncompliance.

Use and File: The filing becomes effective when used. The insurer must file rates, rules, etc. with the state regulator within a specified time period after first use. A state regulator may disapprove a filing at any time if it is not in compli-ance with the law. The state regulator normally must hold a hearing to establish noncompliance.

State-Prescribed: The state regulator determines and promulgates the rates, classifications, forms, etc. to which all insurers must adhere. Insurers are usually permitted to deviate from state prescribed rates, classifications, forms, etc., with the approval of the state regulator.

No File/Record Maintenance: The insurer need not file rates, rules, etc. with the state regulator. Rates, rules, etc. become effective when used. The state regu-lator may periodically examine insurer(s) to ensure compliance with the law.

Generally, there are record maintenance requirements, under which insurers must make their rating systems available to the state regulator for examination. A state regulator may order discontinuance of the use of the material at any time if it is not in compliance with the law. The state regulator normally must hold a hearing to establish noncompliance.

I.I.I. Insurance Handbook 59

Insurance Topics Updates at www.iii.org/issues_updates

ReinsuranceAutoInsurance

Reinsurance

Reinsurance is insurance for insurance companies. It is a way of transferring or “ceding” some of the financial risk insurance companies assume in insur-ing cars, homes and businesses to another insurance company, the reinsurer.

Reinsurance, a highly complex global business, accounted for about 9 percent of the U.S. property/casualty insurance industry premiums in 2008, according to the Reinsurance Association of America.

The reinsurance business is evolving. Traditionally, reinsurance transactions were between two insurance entities: the primary insurer that sold the original insurance policies and the reinsurer. Most still are. Primary insurers and reinsur-ers can share both the premiums and losses or reinsurers may assume the pri-mary company’s losses above a certain dollar limit in return for a fee. However, risks of various kinds, particularly of natural disasters, are now being sold by insurers and reinsurers to institutional investors in the form of catastrophe bonds and other alternative risk-spreading mechanisms. Increasingly, new prod-ucts reflect a gradual blending of reinsurance and investment banking.

After Hurricane Andrew hit Southern Florida in 1992, causing $15.5 billion in insured losses at the time, it became clear that U.S. insurers had seriously underestimated the extent of their liability for property losses in a megadisas-ter. Until Hurricane Andrew, the industry had thought $8 billion was the larg-est possible catastrophe loss. Reinsurers subsequently reassessed their position, which in turn caused primary companies to reconsider their catastrophe reinsur-ance needs.

The shortage and high cost of traditional catastrophe reinsurance precipi-tated by Hurricane Andrew and declining interest rates, which sent investors looking for higher yields, prompted interest in securitization of insurance risk. Among the precursors to catastrophe bonds and other forms of securitiza-tion were contingency financing bonds such as those issued for the Florida Windstorm Association in 1996, which provided cash in the event of a catastro-phe but had to be repaid after a loss, and contingent surplus notes—an agree-ment with a bank or other lender that in the event of a megadisaster that would significantly reduce policyholders’ surplus, funds would be made available at a predetermined price. Funds to pay for the transaction should money be needed, are held in U.S. Treasuries. Surplus notes are not considered debt, therefore do not hamper an insurer’s ability to write additional insurance. In addition, there were equity puts, through which an insurer would receive a sum of money in the event of a catastrophic loss in exchange for stock or other options.

A catastrophe bond is a specialized security, introduced in 1997, that

60 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

AutoReinsuranceI

increases insurers’ ability to provide insurance protection by transferring the risk to bond investors. Commercial banks and other lenders have been securitiz-ing mortgages for years, freeing up capital to expand their mortgage business. Insurers and reinsurers issue catastrophe bonds to the securities market through an issuer known as a special purpose reinsurance vehicle (SPRV) set up specifi-cally for this purpose. These bonds have complicated structures and are typically created offshore where tax and regulatory treatment may be more favorable. SPRVs collect the premium from the insurance or reinsurance company and the principal from investors and hold them in a trust in the form of U.S. Treasuries or other highly rated assets, using the investment income to pay interest on the principal. Catastrophe bonds pay high interest rates but if the trigger event occurs, investors lose the interest and sometimes the principal, depending on the structure of the bond, both of which may be used to cover the insurer’s disaster losses. Bonds may be issued for a one-year term or multiple years, often three.

The field has gradually evolved to the point where some investors and insurance company issuers are beginning to feel comfortable with the concept, with some coming back to the capital markets each year. In addition to the high interest rates catastrophe bonds pay, their attraction to investors is that they diversify investment portfolio risk, thus reducing the volatility of returns. The returns on most other securities are tied to economic activity rather than natu-ral disasters. Catastrophe bonds have evolved into a multibillion dollar industry. Though pioneered by reinsurers, primary insurers now frequently sponsor new issues.

In addition to catastrophe bonds, catastrophe options were developed but the market for these options never took off. Another alternative is the exchange of risk where individual companies in different parts of the world swap a certain amount of losses. Payment is triggered by the occurrence of an agreed upon event at a certain level of magnitude.

I.I.I. Insurance Handbook 61

Insurance Topics Updates at www.iii.org/issues_updates

ResidualAutoInsurMarkncets

Residual Markets

In a normal competitive market, insurers are free to select from among people applying for insurance those drivers, property owners and commercial opera-tions they wish to insure. They do this by evaluating the risks involved through a process called underwriting.

Applicants who are considered “high risk” may have difficulty obtaining insurance through the regular “voluntary” market channels. (The term “high risk” applies to individuals or individual businesses with a poor loss record due to inadequate safety measures; certain kinds of businesses or professions where the nature of the work is hazardous or where the risk of lawsuits is high; and specific locations where the risk of theft, vandalism or severe storm damage is substantial.) To make basic coverage more readily available to everyone who wants or needs insurance, special insurance plans have been set up by state regulators working with the insurance industry.

The business that insurers do not voluntarily assume is called the residual market. Residual markets may also be called “shared,” because the profits and losses of each type of residual market are shared by all insurers in the state sell-ing that type of insurance, or involuntary, because insurers do not choose to underwrite the business, in contrast to the regular voluntary market.

Residual market programs are rarely self-sufficient. Where the rates charged to high-risk policyholders are too low to support the program’s operation, insur-ers are generally assessed to make up the difference. These additional costs are typically passed on to all insurance consumers. However, in a few states, insur-ers are not able to recoup their residual market losses and political pressure pre-vents rates from rising to the level they should be actuarially.

The number of drivers and properties insured in the residual market fluctu-ates as lawmakers and regulators change laws or address availability, rate ade-quacy and other factors that influence underwriting decisions.

The Automobile Residual Market

The first of the residual market mechanisms for automobile coverage was estab-lished in New Hampshire in 1938. As states began to pass laws requiring drivers to furnish proof of insurance, having auto liability insurance became a prereq-uisite for driving a car. Today, all 50 states and the District of Columbia use one of four systems to guarantee that auto insurance is available to those who need it. All four systems are commonly known as assigned risk plans, although the term technically applies only to the first type of plan, where each insurer is required to assume its share of residual market policyholders or “risks.” (The

62 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

ResidualAutoInsuranceMarkets

term “risk” is used in the insurance industry to denote the policyholder or prop-erty insured as well as the chance of loss.) Commercial auto insurance is also available through the residual market.

Automobile Insurance Plans: The assigned risk plan, the most common type, currently found in 42 states and the District of Columbia, generally is administered through an office created or supported by the state and governed by a board representing insurance companies licensed in the state. Massachu-setts began a three-year process of changing over to an assigned risk plan, begin-ning in April 2008. It formerly had a reinsurance pooling facility.

When agents or company representatives are unable to obtain auto insur-ance for an applicant in the voluntary market, they submit the application to the assigned risk plan office. These applications are distributed randomly by the automobile insurance plan to all insurance companies that offer automobile liability coverage in the state in proportion to the amount of their voluntary business. Thus, if on a given day the plan receives 100 applications from agents around the state, a company with 10 percent of that state’s regular private pas-senger automobile insurance business will be assigned 10 of those applicants and will be responsible for all associated losses.

Assigned risk policies usually are more restricted in the coverage they can provide and have lower limits than voluntary market policies. In addition, pre-miums for assigned risk policies usually are significantly higher, although not always sufficiently high enough to cover the increased costs of insuring high-risk drivers.

Joint Underwriting Associations (JUAs): Automobile JUAs, found in four states, Florida, Hawaii, Michigan and Missouri, are state-mandated pool-ing mechanisms through which all companies doing business in the state share the premiums of business outside the voluntary market as well as the profits or losses and expenses incurred. To simplify the policyholder distribution pro-cess, insurance agents and company representatives are generally assigned one of several servicing carriers (companies that have agreed for a fee to issue and service JUA policies). They submit applications to that company, which then issues the JUA policy. In Michigan, however, agents submit applications directly to the JUA office, which then distributes them to the servicing carriers. Cover-ages offered by JUAs generally are the same as those offered in the voluntary market but the limits may be lower. Although rates may be higher than in the voluntary market, they may not be sufficient for the JUA to be self-sustaining. State statutes setting up the JUA generally permit it to recoup losses by surcharg-

I.I.I. Insurance Handbook 63

Insurance Topics Updates at www.iii.org/issues_updates

ResidualAutoInsurMarkncets

ing policyholders or deducting losses from state premium taxes. (JUAs may be set up for other lines of insurance, including homeowners insurance. JUAs for commercial insurance coverage, such as medical malpractice and liquor liability, may operate somewhat differently in some states, see below.)

Reinsurance Facilities: Reinsurance facilities exist in North Carolina, New Hampshire and Massachusetts. (In Massachusetts, beginning in April 2008, the reinsurance facility which is known as Commonwealth Automobile Insurers, or CAR, began disbanding over a three-year period as the new ”managed competi-tion” regulations take effect.) An automobile reinsurance facility is an unincor-porated, nonprofit entity, through which auto insurers provide coverage and service claims. After issuing a policy, an insurer decides whether to handle the policy as part of its regular “voluntary business” or transfer it to the reinsurance facility or pool. An insurer is permitted to transfer or “cede” to the pool a per-centage of its policies. Premiums for this portion of business are sent to the pool and companies bill the pool for claims payments and expenses. Profits or losses are shared by all auto insurers licensed in the state.

State Fund: One state, Maryland, has a residual market mechanism for auto insurance which is administered by the state. It was created in 1973. Private insurers do not participate directly in the Maryland Automobile Insurance Fund (MAIF) but are required by law to subsidize any losses from the operation, with the cost being charged back against their own policyholders. In years that the fund has a loss, all Maryland insured drivers, including MAIF drivers, help offset the deficit through an assessment mechanism.

Size of the Auto Insurance Market: Together, residual market programs insured about 1.97 million cars in 2007, about 1.06 percent of the total mar-ket and a 9.0 percent drop from 2006, according to the Automobile Insurance Plans Service Office, which tracks such data. In 1990 the residual market served 6.3 percent of the total market. In 2007, in a major change from much of the 1990s, only one state, North Carolina, had more than a million cars insured through the residual market. At 1.5 million, the pool insured more than 21.6 percent of the state’s total insured vehicles. In South Carolina, which enacted sweeping reforms in 1998, the residual market dropped from 38 percent of all insured cars in 1996 to close to zero in 2007.

The Property Residual Market

Pools: FAIR Plans, Beach and Windstorm Plans, Assigned Risk and Others: A pool is an organization of insurers or reinsurers through which particular types

64 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

ResidualAutoInsuranceMarkets

of insurance coverage are provided. The pool acts as a single insuring entity, as opposed to some JUAs and assigned risk plans where the policyholder deals directly with an individual insurance company. Premiums, losses and expenses are shared among pool members in agreed-upon amounts. The range of activi-ties handled by the pool varies. Some pool operations are limited to redistrib-uting premiums and losses, while others have broader functions similar to an insurance company. Some pools use specific insurers as servicing carriers.

In pools composed of primary companies (as opposed to reinsurers), busi-ness is placed directly with the pool by the agent. (In a reinsurance pool, a member company underwrites the risk, issues the policy and reinsures the business in the pool, see below.) Pools may be mandated by state legislation or established on a voluntary basis.

Pools assure that insurance is available to property owners in high-risk, gen-erally urban or coastal areas, and businesses with a poor safety record or other high risk characteristics. Among the best-known primary pooling arrangements are property insurance plans, such as Beach and Windstorm Plans, which insure owners of properties vulnerable to severe storm damage.

FAIR Plans: Thirty-two states and the District of Columbia currently have property insurance plans known as FAIR, an acronym for Fair Access to Insur-ance Requirements Plans. The concept of FAIR Plans was established following passage by Congress of the Housing and Urban Development Act of 1968, a measure designed to address the conditions that led to the 1967 urban riots. This legislation made federal riot reinsurance available to those states that insti-tuted such property insurance pools. One of the plans, Arkansas’ Rural Risk Plan, was created in 1988 to provide a market for property insurance in rural areas where fire protection is poor or nonexistent. Mississippi’s Rural Plan, which offered fire, extended coverage and vandalism, see below, was expanded to cover the entire state in 2003. (The state’s windstorm pool offers wind and hail coverage in coastal counties to the Plan’s policyholders.) Georgia’s FAIR Plan also provides windstorm and hail coverage in coastal counties as do Plans in Massachusetts and New York. In most states where FAIR Plans are in opera-tion, they are mandatory.

Beach and Windstorm Insurance Plans: Counterparts to the FAIR Plans are Beach and Windstorm Insurance Plans, operated by property insurers in states along the Atlantic and Gulf Coasts to assure that insurance is available for both residences and commercial properties against damage from hurricanes and other windstorms. Established between 1969 and 1971, Beach and Windstorm Plans

I.I.I. Insurance Handbook 65

Insurance Topics Updates at www.iii.org/issues_updates

ResidualAutoInsurMarkncets

operate in a manner similar to FAIR Plans, except that properties must be locat-ed in a designated area to be eligible for insurance under the Plans.

There are currently five Beach and Windstorm Plans: Alabama, Mississippi, South Carolina, North Carolina and Texas. In 2001 there were seven pools, but Florida’s windstorm pool merged with the joint underwriting association in 2002 to create a new type of residual market entity, see below. In a similar move in 2003, Louisiana merged its FAIR Plan with its coastal pool. The Plans are mandatory in all of these states with the exception of Alabama. (In addition, hail and windstorm coverage for homes in coastal counties is available through some FAIR Plans, see above and the WindMap in New Jersey.) Windstorm Plans in Mississippi, South Carolina and Texas offer only wind and hail coverage. Plans in Alabama and North Carolina offer coverage for fire as well. In some states, Plan policyholders must buy flood insurance also.

Property owners who live in areas covered by Beach and Windstorm Plans may be insured for windstorm losses by the Plan or by an individual insur-ance company. If an insurer has accepted all the windstorm risk it is prepared to assume, an applicant for homeowners insurance may purchase a policy that excludes windstorm coverage from the homeowners insurance company and pay a separate premium for windstorm coverage to the Plan.

One disadvantage of Beach and Windstorm Plans, and the National Flood Insurance Program, is that the availability of insurance encourages development of coastal areas where construction otherwise would not be feasible and where tax money must be spent to protect against continuous erosion to preserve the property.

In the past there was a clear delineation between coastal and urban plans with coastal properties insured under Beach and Windstorm Plans, and urban properties under FAIR Plans. Increasingly, the distinctions are blurring. FAIR Plans are acting as an insurer of last resort for residents who live in shoreline communities in states that do not have a Beach and Windstorm Plan, such as New York State. Beach and Windstorm Plans in some states are being merged with FAIR Plans or joint underwriting associations, as in Florida and Louisiana, or are administering new FAIR Plans, as in Texas. As a result, it is difficult to compare the number of properties insured under any Plan with numbers from earlier years. FAIR Plans have almost doubled in size, pushed up in large part by these mergers and the increase in coastal properties in such states as New York and Massachusetts, but also by more stringent underwriting standards on the part of insurers in the voluntary market.

66 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

ResidualAutoInsuranceMarkets

Residual Market Plan Mergers: In 2002 Florida’s two residual market organizations, the JUA and the Florida Windstorm Underwriting Association, merged to become the Citizens’ Property Insurance Corporation (CPIC). The Florida CPIC, known as Citizens, has a tax-exempt status. This feature enables it to finance loss payments in the event of a major disaster by issuing tax-exempt bonds that carry low interest rates, thus reducing financing costs over the years by hundreds of millions of dollars. In Louisiana, following Florida’s model, the FAIR Plan and the Coastal Plan became the Louisiana Citizens Property Insur-ance Corporation in 2004.

Other Residual Market Entities

JUAs for Other Lines of Insurance: JUAs are not limited to automobile insurance. At various times, there have been JUAs for residential insurance and workers compensation. A number of states have medical malpractice JUAs, most of which were set up in the 1970s or 1980s when the line was beset by high losses.

Market Assistance Plans (MAPs): A MAP is a temporary, voluntary clear-inghouse and referral system designed to put people looking for insurance in touch with insurance companies. They are organized when something happens to cause insurance companies to cut back on the amount of insurance they are willing to provide. MAPs are generally administered by agents’ associations, which assign insurance applications to a group of insurers doing business in a state. These companies have agreed to take their share of applicants on a rotat-ing basis.

MAPs may be organized for a single line of insurance, such as daycare liability or homeowners insurance, or for a broad range of liability coverages. Homeowners insurance MAPs have been formed in several East Coast states, including Connecticut and Texas, and medical malpractice MAPs were created in states such as Washington, when the medical community had difficulty find-ing malpractice insurance.

Workers Compensation Assigned Risk Plans and Pools:

The mechanism used to handle the workers compensation residual market var-ies from state to state. In the four remaining states with a monopolistic state workers compensation fund (North Dakota, Ohio, Washington and Wyoming switched to a competitive market in July 2008), all businesses are insured through that fund. In most states with a competitive state fund (an entity that competes for business with private insurers), the fund accepts all risks rejected

I.I.I. Insurance Handbook 67

Insurance Topics Updates at www.iii.org/issues_updates

ResidualAutoInsurMarkncets

by the voluntary market, thus eliminating the need for assigned risk plans. In states without a competitive fund, insurers may be assigned applicants based on their market share and service those employers as they would employers that came to them through the voluntary market, through a system known as direct assignment. They may also participate in the residual market through a reinsur-ance pooling arrangement.

Second Injury Funds: Second injury funds were created to encourage business-es to hire workers who are physically handicapped by congenital defects or the residual effects of an accident or illness but due to other laws that now protect the physically handicapped worker, such as the Americans With Disabilities Act, some states are disbanding their fund.

Second injury funds receive money from insurance companies and employ-ers as well as from legislative appropriations. Insurance company payments may be based on a percentage of total compensation paid, premiums collected or the nature of the specific injury. The second injury funds may be administered by the state Workers Compensation Commission, Industrial Board or Department of Labor.

68 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

Terrorism RiskAutoand Insurance

Terrorism Risk and Insurance

Prior to September 11, 2001, insurers provided terrorism coverage to their com-mercial insurance customers essentially free of charge because the chance of property damage from terrorist acts was considered remote. After September 11, which costs insurers about $31.6 billion, insurers began to reassess the risk. For a while terrorism coverage was scarce. Reinsurers were unwilling to reinsure pol-icies in urban areas perceived to be vulnerable to attack. Primary insurers filed requests with their state insurance departments for permission to exclude terror-ism coverage from their commercial policies.

Concerned about the limited availability of terrorism coverage in high-risk areas and its impact on the economy, Congress passed the Terrorism Risk Insurance Act (TRIA). The Act provides a temporary program that, in the event of major terrorist attack, allows the insurance industry and federal government to share losses according to a specific formula. TRIA was signed into law on November 26, 2002 and renewed again for two years in December 2005. Passage of TRIA enabled a market for terrorism insurance to begin to develop because the federal backstop effectively limits insurers’ losses, greatly simplifying the underwriting process. TRIA was extended for another seven years to 2014 in December 2007. The new law is known as the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) of 2007.

The Difficulty of Insuring Terrorism Risk: From an insurance viewpoint, terrorism risk is very different from the kind of risks typically insured. To be readily insurable, risks have to have certain characteristics.

The risk must be measurable. Insurers must be able to determine the pos-sible or probable number of events (frequency) likely to result in claims and the maximum size or cost (severity) of these events. For example, insurers know from experience about how many car crashes to expect per 100,000 miles driven for any geographic area and what these crashes are likely to cost. As a result they can charge a premium equal to the risk they are assuming in issuing an auto insurance policy.

A large number of people or businesses must be exposed to the risk of loss but only a few must actually experience one so that the premiums of those that do not file claims can fund the losses of those who do. Losses must be random as regards time, location and magnitude.

Insofar as acts of terrorism are intentional, terrorism risk does not have these characteristics. In addition, no one knows what the worst case scenario might be. There have been very few terrorist attacks, so there is little data on

I.I.I. Insurance Handbook 69

Insurance Topics Updates at www.iii.org/issues_updates

TerrorismAutoInsuranceRiskand Insurance

which to base estimates of future losses, either in terms of frequency or severity. Terrorism losses are also likely to be concentrated geographically, since terrorism is usually targeted to produce a significant economic or psychological impact.

This leads to a situation known in the insurance industry as adverse selection, where only the people most at risk purchase coverage, the same people who are likely to file claims. Moreover, terrorism losses are never random. They are care-fully planned and often coordinated.

Assessing Risk: To underwrite terrorism insurance—to decide whether to offer coverage and what price to charge—insurers must be able to quantify the risk: the likelihood of an event and the amount of damage it would cause. Increas-ingly, they are using sophisticated modeling tools to assess this risk. According to the modeling firm, AIR Worldwide, the way terrorism risk is measured is not much different from assessments of natural disaster risk, except that the data used for terrorism are more subject to uncertainty. It is easier to project the risk of damage in a particular location from an earthquake of a given intensity or a Category 5 hurricane than a terrorist attack because insurers have had so much more experience with natural disasters than with terrorist attacks and therefore the data to incorporate into models are readily available.

One problem insurers face is the accumulation of risk. They need to know not only the likelihood and extent of damage to a particular building but also the company’s accumulated risk from insuring multiple buildings within a given geographical area, including the implications of fire following a terrorist attack. In addition, in the United States, workers compensation insurers face concentra-tions of risk from injuries to workers caused by terrorism attacks. Workers com-pensation policies provide coverage for loss of income and medical and rehabili-tation treatment from “first dollar,” that is without deductibles.

Extending the Terrorism Risk Insurance Act (TRIA): There is general agreement that TRIA has helped insurance companies provide terrorism cover-age because the federal government’s involvement offers a measure of certainty as to the maximum size of losses insurers would have to pay and allows them to plan for the future. However, when the Act came up for renewal in 2005 and in 2007, there were some who believed that market forces should be allowed to deal with the problem.

Both the U.S. Government Accountability Office and the President’s Working Group on Financial Markets published reports on terrorism insurance in September 2006. The two reports essentially supported the insurance indus-try in its evaluation of nuclear, biological, chemical and radiological (NBCR)

70 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

Terrorism RiskAutoand Insurance

risk—that it is uninsurable—but unlike the insurance industry, the President’s Working Group said that the existence of TRIA has negatively affected the development of a more robust market for terrorism insurance, a point on which the industry disagrees. TRIA is the reason that coverage is available, insurers say. The structure of the program has encouraged the development of reinsurance for the layers of risk that insurers must bear themselves—deductible amounts and coinsurance—which in turn allows primary insurers to provide coverage.

TRIA and its extensions authorized the creation of a federal reinsurance plan, which is triggered when insured terrorism losses exceed a predetermined amount. The program, a sharing of losses between the insurance industry and the federal government according to a preset formula—a type of reinsurance— has enabled the commercial insurance market to function, even though the threat of terrorism remains.

The law defines an act of terrorism under the 2007 amendment. To be cov-ered by the federal program, an act of terrorism must be committed by individu-als acting as part of an effort to influence the policy or conduct of the United States. The law also requires that the act be certified by the Secretary of the Treasury in concurrence with the Secretary of State and the Attorney General. Insurers do not pay the federal government for this reinsurance coverage.

Only commercial insurers and causes of losses specified in the underlying policies are covered. In addition to commercial lines insurers, insurers eligible for coverage include residual market entities such as workers compensation pools, state-licensed captive insurers and risk retention groups, see report on captives. Personal lines insurance companies—those that sell auto and home insurance—and reinsurers are not covered. Neither are group life insurance losses. Most types of commercial insurance losses were covered under the origi-nal legislation, except some specialty coverages such as medical malpractice and crop insurance. Some commercial insurance coverages were deleted under the 2005 extension including commercial auto insurance, professional liabil-ity except for directors and officers liability, surety, burglary and theft and farmowners multiperil, a coverage similar to homeowners.

In return for the federal backstop, commercial insurers must make terrorism coverage available and conspicuously state the premium charges; policyhold-ers can reject the offer and choose to mitigate this class of risk in other ways. In offering terrorism coverage to their policyholders, commercial insurers must make it available on the same terms and conditions as they offer in their non-TRIA coverage.

After September 11, to minimize the likelihood of a wave of liability claims,

I.I.I. Insurance Handbook 71

Insurance Topics Updates at www.iii.org/issues_updates

TerrorismAutoInsuranceRiskand Insurance

Congress established the Federal Victims Compensation Act, which provided nearly $7 billion in payments to families of September 11 victims. In return, vic-tims’ families were required to give up the right to sue those they perceived as responsible parties. This provision is not part of TRIA or its extension.

Mandated Coverages/Exclusions: In some states a doctrine know as “fire following” applies. This means that in the event of a terrorist-caused explosion followed by fire, insurers could be liable to pay out losses attributable to the fire (but not the explosion) even if a commercial property owner had not purchased terrorism coverage. A number of states have amended their standard fire policy laws to exclude such coverage for acts of terrorism.

Injuries in the workplace resulting from terrorist attacks are covered under state workers compensation laws. Workers compensation insurance is a manda-tory coverage in all states but Texas.

72 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

WorkersAutoCompensationInsurance

Workers Compensation

Workers compensation insurance covers the cost of medical care and rehabilita-tion for workers injured on the job. It also compensates them for lost wages and provides death benefits for their dependents if they are killed in work-related accidents, including terrorist attacks. The workers compensation system is the “exclusive remedy” for on-the-job injuries suffered by employees. As part of the social contract embedded in each state’s law, the employee gives up the right to sue the employer for injuries caused by the employer’s negligence and in return receives workers compensation benefits regardless of who or what caused the accident, as long as it happened in the workplace as a result of and in the course of workplace activities.

Workers compensation systems vary from state to state. State statutes and court decisions control many aspects, including the handling of claims, the evaluation of impairment and settlement of disputes, the amount of benefits injured workers receive and the strategies used to control costs.

Workers compensation costs are one of the many factors that influence businesses to expand or relocate in a state, generating jobs. When premiums rise sharply, legislators often call for reforms. The last round of widespread reform legislation started in the late 1980s. In general, the reforms enabled employ-ers and insurers to better control medical care costs through coordination and oversight of the treatment plan and return-to-work process and to improve workplace safety. Some states are now approaching a crisis once again as new problems arise.

The Workers Compensation Social Contract: The industrial expansion that

took place in the United States during the 19th century was accompanied by a significant increase in workplace accidents. At that time, the only way injured workers could obtain compensation was to sue their employers for negligence.

Proving negligence was a costly, time-consuming effort, and often the court ruled in favor of the employer. But by the early 1900s, a state-by-state pattern of legisla-tive proposals designed to compensate injured workers had begun to emerge.

Wisconsin enacted the first permanent workers compensation insurance law in 1911 (New York had enacted a law a year earlier but it was found unconsti-tutional), and by 1920 all but eight states had enacted similar laws. By 1949 all states had a workers compensation system that provided compensation to work-ers hurt on the job, regardless of who was at fault. The costs of medical treat-ment and wage loss benefits were the responsibility of the employer which were paid through the workers compensation system.

I.I.I. Insurance Handbook 73

Insurance Topics Updates at www.iii.org/issues_updates

WorkersAutoInuranceCompensation

The scope of workers compensation coverage has broadened consider-ably since its early beginnings. In 1972, states amended their laws to meet performance standards recommended by the National Commission on State Workmen’s Compensation Laws. Many states took action not only to expand benefits but also to make the coverage applicable to classifications of employees not previously covered.

However, compensation levels are not uniform. In some states benefits are still inadequate, while in others, they are overly generous. Some states were slow in adopting the National Commission’s guidelines and have still not embraced the entire package of 19 recommendations published in 1972. Many states exempt employers with only a few workers (fewer than five, four or three, depending on the state) from mandatory coverage laws. A major benefits issue still to be resolved in some states is the imbalance between levels of compensa-tion for various degrees of impairment; permanent partial disabilities tend to be overcompensated and permanent total disability undercompensated.

Some coverage for workers compensation is provided by federal programs. For example, the Longshoremen’s and Harbor Workers Compensation Act, passed in 1927 and substantially amended in 1984, provides coverage for certain maritime employees and the Federal Employees’ Compensation Act protects workers hired by the U.S. government.

Employers can purchase workers compensation coverage from private insur-ance companies or state-run workers agencies, known as state funds. In 14 states, state funds compete with private insurers (competitive funds) and in four states, the state is the sole provider of workers compensation insurance. State funds also function as the insurer of last resort for businesses that have diffi-culty getting coverage in the open market.

The only state in which workers compensation coverage is truly optional is Texas, where about one-third of the state’s employers are so-called nonsubscrib-ers. Those that opt out of the system can be sued by employees for failure to provide a safe workplace. The nonsubscribers tend to be smaller companies, but the percentage of larger companies opting out has been growing.

Some businesses finance their own workplace injury benefits through a system known as self-insurance. Large organizations with many employees can often estimate the cost of routine types of injuries. Self-insurance, along with large deductibles, which are in effect self-insurance, now account for more than one-third of traditional market premium.

About nine out of 10 people in the nation’s workforce are protected by workers compensation insurance.

74 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

WorkersAutoCompensationInsurance

How the System Works: Workers compensation systems are administered by the individual states, generally by commissions or boards whose responsibility it is to ensure compliance with the laws, investigate and decide disputed cases, and collect data. In most states employers are required to keep records of acci-dents. Accidents must be reported to the workers compensation board and to the company’s insurer within a specified number of days.

Workers compensation covers an injured worker’s medical care and attempts to cover his or her economic loss. This includes loss of earnings and the extra expenses associated with the injury. Injured workers receive all medi-cally necessary and appropriate treatment from the first day of injury or illness and rehabilitation when the disability is severe.

To rein in expenditures and improve cost effectiveness, many states have adopted cost control measures, including treatment guidelines that spell out acceptable treatments and diagnostic tests for specific injuries such as lower back injuries and fee schedules that set maximum payment amounts to doctors for certain types of care.

Most claims are medical only, but lost-time claims, those with both medi-cal and lost income payments, though few, consume most resources. Claims are categorized according to the degree of impairment—partial or total disabil-ity—and whether the impairment is permanent or temporary. Cash benefits can include impairment benefits and, when the impairment causes a loss of income, disability or wage loss benefits.

Impairment can be defined in several ways. Payments may be based on a schedule or list of body parts covered and the benefits paid for a loss of that part. For injuries not on the schedule, benefit payments may be calculated according to the degree of impairment or the loss of future or current earnings capacity, often using the American Medical Association’s definitions.

Most states pay benefits for the duration of the injury. But some specify a maximum number of weeks, particularly for temporary disabilities. For workers with a total disability, the benefit amount is some percentage of the worker’s weekly wage (actual or state average). Cash benefits may not be paid until after a waiting period of several days.

Costs to Employers: Costs to employers include premiums, payments made under deductibles and the benefits and administrative costs incurred by employ-ers that self-insure or fund their own benefit program. In the mid-1950s, private sector employers paid an average 0.5 percent of payroll for workers compensa-tion. By 1970 this figure was 1 percent. Employer costs escalated steeply in the 1980s and 1990s, reaching a record high in 1994 of 2.99 percent. Since then

I.I.I. Insurance Handbook 75

Insurance Topics Updates at www.iii.org/issues_updates

WorkersAutoInuranceCompensation

they have fluctuated. Estimates by John Burton in the Workers Compensa-tion Policy Review, January/February 2008 put workers compensation costs as a percentage of payroll in 2007 at 2.28, up from a 10-year low of 1.92 in 2001. The NCCI estimates that in 2008 employers’ workers compensation insurance costs accounted for 1.7 percent of total compensation costs. However, there is a wide variation in costs among states and industries, so that the highest rated (the inherent riskiest) groups could pay several hundred times that of the lowest rated (safest) groups, as a percentage of payroll. Also taken into account is the firm’s own safety record.

Reducing Costs: Workers compensation system costs are rarely static. Reforms are implemented and then, over time, one or more elements in these multifaceted systems get out of balance. Some employers and legislators com-plain that the cost of coverage is hurting the state’s economy by reducing its ability to compete with other states for new job-producing opportunities.

In the 1980s, with a view to increasing competition within the insurance industry in order to bring down rates, legislation was introduced in more than a dozen states to change the method of establishing rates from administered pric-ing, where rating organizations recommended rates that included expenses and a margin for profit, to open competition. Now insurers base their rate filings on more of their own company’s specific data, rather than using industrywide figures in such areas as expenses and profit and contingency allowances. Rating organizations still provide industrywide data on “losses”—the costs associated with work-related accidents, which help small companies that lack access to large amounts of data.

The aim of the workers compensation system is to help workers recover from work-related accidents and illnesses and to return to the workplace. A fast return to work is desirable from the employer and insurer’s viewpoint, lowering claim costs for the insurer but benefiting the worker too.

Another factor pushing up costs in some states is the amount of attorney involvement. Workers compensation programs were originally intended to be “no-fault” systems and therefore litigation-free.

However today, attorneys are involved in 5 to 10 percent of all workers compensation claims in most states—but in as much as 20 percent in systems where the number of disputes is high and in roughly a third of claims where the worker was injured seriously.

Although attorney involvement boosts claim costs by 12 to 15 percent, because claimants must pay attorneys’ fees there is generally no net gain in

76 I.I.I. Insurance Handbook

Updates at www.iii.org/issues_updates Insurance Topics

WorkersAutoCompensationInsurance

the actual benefits received. The involvement of an attorney does not necessar-ily indicate formal litigation proceedings. Sometimes, injured workers turn to attorneys to help them negotiate what they believe is a confusing and complex system. Increasingly, states are trying to make the system easier to understand and to use.

The workers compensation system plays a major role in improving work-place safety. An employer’s workers compensation premium reflects the relative hazards to which workers are exposed and the employer’s claim record. About one-half of states allow what is known as “schedule rating,” a discount or rate credit for superior workplace safety programs.

Workers Compensation Residual Markets: Residual markets, traditionally the market of last resort, are an important segment of the workers comp market. Workers comp residual plans are administered by the NCCI in 29 jurisdictions. In some states, particularly where rates in the voluntary market are inadequate, the residual market provides coverage for a large portion of policyholders.

Terrorism Coverage: Since the terrorist attacks of September 11, 2001, work-ers compensation insurers have been taking a closer look at their exposures to catastrophes, both natural and man-made. According to a report by Risk Man-agement Solutions, if the earthquake that shook San Francisco in 1906 were to happen today, it could cause as many as 78,000 injuries, 5,000 deaths and over $7 billion in workers compensation losses.

Workers compensation claims for terrorism could cost an insurer anywhere from $300,000 to $1 million per employee, depending on the state. As a result, firms with a concentration of employees in a single building in major metro-politan areas, such as New York, or near a “trophy building” are now considered high risk, a classification that used to apply only to people in dangerous jobs such as roofing.

STATES WITH A STATE-RUN WORKERS COMPENSATION FUND

Competitive with Private Insurers			Exclusive
Arizona*	Maryland	Oregon	North Dakota
California	Minnesota	Pennsylvania	Ohio
Colorado	Montana	Texas	Washington
Idaho	New York	Utah	Wyoming**
Kentucky	Oklahoma	West Virginia

*Scheduled to be privatized by 2013.

**Compulsory for extra hazardous operations only. Employers with nonhazardous operations may insure with the state fund or opt to go without coverage.

I.I.I. Insurance Handbook 77

401(K) PLAN

An employer-sponsored retirement savings plan funded by employee contributions, which may or may not be matched by the employer. Federal laws allow employees to invest pretax dollars, up to a stated maxi-mum each year.

*403(B) PLAN

In the United States, an arrangement that allows not-for-profit employers and their employees to make contributions to a tax-deferred retirement savings plan estab-lished for the benefit of employees.

529 SAVINGS PLANS

State-administered plans designed to encourage households to save for col-lege education. Named after a part of the

Internal Revenue tax code, these saving plans allow earnings to accumulate free of federal income tax and sometimes to be withdrawn to pay for college costs taxfree. There are two types of plans: savings and prepaid tuition. Plan assets are managed either by the state’s treasurer or an outside investment company. Most offer a range of investment options.

A-SHARE VARIABLE ANNUITY

A form of variable annuity contract where the contract holder pays sales charges up front rather than eventually having to pay a surrender charge.

*Terms marked with an asterisk (*) are from LOMA’s Glossary of Insurance and Financial Services Terms. Copyright © 2002 LL Global, Inc. Used with permission from LL Global. All rights reserved. Copying these terms without permission from LL Global is a violation of U.S. fed-eral law and international law. For information on purchasing a copy of the Glossary or for additional information on LOMA, an operating division of LL Global, and its educational programs, visit LOMA’s website at www.loma.org.

Terms from the LOMA Glossary appear in this Handbook by special permission of LL Global, Inc., which has an operating division known as LOMA. However, LL Global makes no representation or endorsement, express or implied, regarding this Handbook, its owner or its products or services. LL Global is not related to the owner of this Handbook in any way and use of this Glossary does not indicate a sponsorship, endorse-ment or affiliation with or by LL Global. By choosing to read these terms, you hereby agree not to use or rely on the definitions contained in the LOMA Glossary in interpreting any particular policy or contract or groups of policies or contracts, whether issued by the owner of this Handbook or anyone else or in connection with the interpretation of a legal or insurance issue. These definitions are for general informational and educational purposes only. You should consult a qualified professional for interpretation of terms in a specific contract. LL Global does not interpret insur-ance policies in whole or in part and LL Global is not legally responsible for any interpretation of policy or contract terms used by any insurer, the owner of this Handbook or any other person.

Furthermore, the Glossary is a compilation of definitions from various LOMA texts; however, it is not an assigned text for any LOMA course. Sometimes a definition in the Glossary will differ somewhat from the definition in a text because of the nuances of the subject matter in the text. A student taking an exam always should rely on the definition in the assigned text rather than the one in the Glossary.

78 I.I.I. Insurance Handbook

*ABSOLUTE ASSIGNMENT

An irrevocable transfer of complete owner-ship of a life insurance policy or an annuity from one party to another. Contrast with Collateral assignment. (See Assignment)

ACCELERATED DEATH BENEFITS

A life insurance policy option that provides policy proceeds to insured individuals over their lifetimes, in the event of a terminal illness. This is in lieu of a traditional policy that pays beneficiaries after the insured’s death. Such benefits kick in if the insured becomes terminally ill, needs extreme medical intervention, or must reside in a nursing home. The payments made while the insured is living are deducted from any death benefits paid to beneficiaries.

ACCIDENT AND HEALTH INSURANCE

Coverage for accidental injury, accidental death, and related health expenses. Benefits will pay for preventative services, medical expenses and catastrophic care, with limits.

*ACCIDENTAL DEATH BENEFIT (ADB)

A supplementary life insurance policy benefit that provides a death benefit in addition to the policy’s basic death benefit if the insured’s death occurs as the result of an accident. (See Double indemnity benefit)

*ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) BENEFIT

A supplementary life insurance policy benefit that provides for an amount of money in addition to the policy’s basic death benefit. This additional amount is payable if the insured dies as the result of an accident or if the insured loses any two limbs or the sight in both eyes as the result of an accident.

ACCOUNT RECEIVABLES

See Receivables.

Glossary

*ACCUMULATION AT INTEREST DIVIDEND OPTION

An option, available to the owners of par-ticipating insurance policies, that allows a policy owner to leave policy dividends on deposit with the insurer and earn interest. (See Dividends)

ACTUAL CASH VALUE

A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation. (See Replace-ment cost)

ACTUARY

An insurance professional skilled in the analysis, evaluation and management of statistical information. Evaluates insurance firms’ reserves, determines rates and rating methods, and determines other business and financial risks.

ADDITIONAL LIVING EXPENSES

Extra charges covered by homeowners poli-cies over and above the policyholder’s cus-tomary living expenses. They kick in when the insured requires temporary shelter due to damage by a covered peril that makes the home temporarily uninhabitable.

*ADDITIONAL TERM INSURANCE OPTION

An option available to owners of partici-pating insurance policies under which the insurer uses a policy dividend as a net single premium to purchase one-year term insurance on the insured’s life. Also known as fifth dividend option. (See Dividend; Policy dividend options)

*ADJUSTABLE LIFE INSURANCE

A form of life insurance that allows policy owners to vary the type of coverage pro-vided by their policies as their insurance needs change.

I.I.I. Insurance Handbook 79

Glossary

ADJUSTER

An individual employed by a property/ca-sualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. Independent adjusters are independent contractors who adjust claims for different insurance companies.

ADMITTED ASSETS

Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an insurance company’s financial position, state statutory accounting rules do not permit certain assets to be included on the balance sheet. Only assets that can be easily sold in the event of liquidation or borrowed against, and receivables for which payment can be reasonably antici-pated, are included in admitted assets. (See Assets)

ADMITTED COMPANY

An insurance company licensed and autho-rized to do business in a particular state.

ADVERSE SELECTION

The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal government but sold mostly through the private market.) In the case of natural disas-ters, such as earthquakes, adverse selection concentrates risk instead of spreading it. Insurance works best when risk is shared among large numbers of policyholders.

AFFINITY SALES

Selling insurance through groups such as professional and business associations.

AFTERMARKET PARTS

See Crash parts; Generic auto parts.

AGENCY COMPANIES

Companies that market and sell products via independent agents.

AGENT

Insurance is sold by two types of agents: independent agents, who are self-employed, represent several insurance companies and are paid on commission; and exclusive or captive agents, who represent only one insurance company and are either salaried or work on commission. Insurance compa-nies that use exclusive or captive agents are called direct writers.

*ALEATORY CONTRACT

A contract in which one party provides something of value to another party in exchange for a conditional promise, which is a promise that the other party will perform a stated act upon the occurrence of an uncertain event. Insurance contracts are aleatory because the policyowner pays premiums to the insurer, and in return the insurer promises to pay benefits if the event insured against occurs. Contrast with Commutative contract.

ALIEN INSURANCE COMPANY

An insurance company incorporated under the laws of a foreign country, as opposed to a “foreign” insurance company which does business in states outside its own.

ALLIED LINES

Property insurance that is usually bought in conjunction with fire insurance; it in-cludes wind, water damage and vandalism coverage.

ALTERNATIVE DISPUTE RESOLUTION/ADR

An alternative to going to court to settle disputes. Methods include arbitration,

80 I.I.I. Insurance Handbook

where disputing parties agree to be bound to the decision of an independent third party, and mediation, where a third party tries to arrange a settlement between the two sides.

ALTERNATIVE MARKETS

Nontraditional mechanisms used to finance risk. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to ob-tain liability insurance and self-insurance, are also included.

ANNUAL ANNUITY CONTRACT FEE

Covers the cost of administering an annu-ity contract.

ANNUAL STATEMENT

Summary of an insurer’s or reinsurer’s financial operations for a particular year, including a balance sheet. It is filed with the state insurance department of each ju-risdiction in which the company is licensed to conduct business.

ANNUITANT

The person who receives the income from an annuity contract. Usually the owner of the contract or his or her spouse.

ANNUITIZATION

The conversion of the account balance of a deferred annuity contract to income payments.

ANNUITY

A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. There are two basic types of an-nuities: deferred and immediate. Deferred annuities allow assets to grow tax-deferred over time before being converted to pay-ments to the annuitant. Immediate annui-

Glossary

ties allow payments to begin within about a year of purchase.

ANNUITY ACCUMULATION PHASE OR PERIOD

The period during which the owner of a deferred annuity makes payments to build up assets.

ANNUITY ADMINISTRATIVE CHARGES

Covers the cost of customer services for owners of variable annuities.

ANNUITY BENEFICIARY

In certain types of annuities, a person who receives annuity contract payments if the annuity owner or annuitant dies while pay-ments are still due.

*ANNUITY CERTAIN

A type of annuity contract that pays peri-odic income benefits for a stated period of time, regardless of whether the annuitant lives or dies. Also known as period certain annuity. Contrast with Straight life annuity. (See Payout options)

ANNUITY CONTRACT

An agreement similar to an insurance policy for other insurance products such as auto insurance.

ANNUITY CONTRACT OWNER

The person or entity that purchases an annuity and has all rights to the contract. Usually, but not always, the annuitant (the person who receives incomes from the contract).

*ANNUITY COST

A monetary amount that is equal to the present value of future periodic income payments under an annuity. (See Gross an-nuity cost; Income date; Net annuity cost)

*ANNUITY DATE

See Income date.

I.I.I. Insurance Handbook 81

Glossary

ANNUITY DEATH BENEFITS

The guarantee that if an annuity contract owner dies before annuitization (the swi-tchover from the savings to the payment phase) the beneficiary will receive the value of the annuity that is due.

ANNUITY INSURANCE CHARGES

Covers administrative and mortality and expense risk costs.

ANNUITY INVESTMENT MANAGEMENT FEE

The fee paid for the management of vari-able annuity invested assets.

ANNUITY ISSUER

The insurance company that issues the annuity.

ANNUITY PROSPECTUS

Legal document providing detailed infor-mation about variable annuity contracts. Must be offered to each prospective buyer.

ANNUITY PURCHASE RATE

The cost of an annuity based on such fac-tors as the age and gender of the contract owner.

mits insurers to jointly develop common insurance forms and share loss data to help them price policies.

APPORTIONMENT

The dividing of a loss proportionately among two or more insurers that cover the same loss.

APPRAISAL

A survey to determine a property’s insur-able value, or the amount of a loss.

ARBITRATION

Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third party.

ARSON

The deliberate setting of a fire.

ASSET-BACKED SECURITIES

Bonds that represent pools of loans of similar types, duration and interest rates. Almost any loan with regular repayments of principal and interest can be securitized, from auto loans and equipment leases to credit card receivables and mortgages.

*ANTISELECTION

The tendency of individuals who suspect or know they are more likely than average to experience loss to apply for or renew insur-ance to a greater extent than people who lack such knowledge of probable loss. Also known as adverse selection and selection against the company.

ANTITRUST LAWS

Laws that prohibit companies from work-ing as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarran-Ferguson Act, per-

ASSETS

Property owned, in this case by an insur-ance company, including stocks, bonds and real estate. Insurance accounting is concerned with solvency and the ability to pay claims. State insurance laws therefore require a conservative valuation of assets, prohibiting insurance companies from listing assets on their balance sheets whose values are uncertain, such as furniture, fix-tures, debit balances and accounts receiv-able that are more than 90 days past due. (See Admitted assets)

ASSIGNED RISK PLANS

Facilities through which drivers can obtain auto insurance if they are unable to buy it

82 I.I.I. Insurance Handbook

in the regular or voluntary market. These are the most well-known type of residual auto insurance market, which exist in every state. In an assigned risk plan, all insur-ers selling auto insurance in the state are assigned these drivers to insure, based on the amount of insurance they sell in the regular market. (See Residual market)

*ASSIGNMENT

An agreement under which one party— the assignor—transfers some or all of his owner-ship rights in a particular property, such as a life insurance policy or an annuity contract, to another party— the assignee. (See Absolute assignment; Collateral assignment)

*ASSOCIATION GROUP

A type of group that generally is eligible for group insurance and that consists of members of an association of individuals formed for a purpose other than to obtain insurance coverage, such as teachers’ asso-ciations and physicians’ associations.

AUTO INSURANCE POLICY

There are basically six different types of coverages. Some may be required by law. Others are optional. They are:

Bodily injury liability, for injuries the policyholder causes to someone else.

Medical payments or Personal Injury Protection (PIP) for treatment of injuries to the driver and passengers of the policyholder’s car.

Property damage liability, for damage the policyholder causes to someone else’s property.

Collision, for damage to the policyholder’s car from a collision.

Comprehensive, for damage to the poli-cyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft.

Glossary

Uninsured motorists coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance.

AUTO INSURANCE PREMIUM

The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices vary from company to com-pany, as with any product or service. Pre-miums also vary depending on the amount and type of coverage purchased; the make and model of the car; and the insured’s driving record, years of driving and the number of miles the car is driven per year. Other factors taken into account include the driver’s age and gender, where the car is most likely to be driven and the times of day—rush hour in an urban neighborhood or leisure time driving in rural areas, for example. Some insurance companies may also use credit history related information. (See Insurance score)

AVIATION INSURANCE

Commercial airlines hold property insur-ance on airplanes and liability insurance for negligent acts that result in injury or property damage to passengers or others. Damage is covered on the ground and in the air. The policy limits the geographical area and individual pilots covered.

B-SHARE VARIABLE ANNUITY

A form of variable annuity contract with no initial sales charge but if the contract is cancelled the holder pays deferred sales charges (usually from 5 to 7 percent the first year, declining to zero after from 5 to 7 years). The most common form of annuity contract.

I.I.I. Insurance Handbook 83

Glossary

BALANCE SHEET

Provides a snapshot of a company’s fi-nancial condition at one point in time. It shows assets, including investments and reinsurance, and liabilities, such as loss reserves to pay claims in the future, as of a certain date. It also states a company’s equity, known as policyholder surplus. Changes in that surplus are one indicator of an insurer’s financial standing.

BANK HOLDING COMPANY

A company that owns or controls one or more banks. The Federal Reserve has responsibility for regulating and supervis-ing bank holding company activities, such as approving acquisitions and mergers and inspecting the operations of such compa-nies. This authority applies even though a bank owned by a holding company may be under the primary supervision of the Comptroller of the Currency or the FDIC.

BASIS POINT

0.01 percent of the yield of a mortgage, bond or note. The smallest measure used.

BEACH AND WINDSTORM PLANS

State-sponsored insurance pools that sell property coverage for the peril of wind-storm to people unable to buy it in the voluntary market because of their high exposure to risk. Several states offer these plans to cover residential and commercial properties against hurricanes and other windstorms. (See Fair access to insurance requirements plans/FAIR plans; Residual market)

*BENEFICIARY

The person or legal entity the owner of an insurance policy names to receive the policy benefit if the event insured against occurs. (See Annuity beneficiary; Contin-gent beneficiary; Irrevocable beneficiary)

BINDER

Temporary authorization of coverage issued prior to the actual insurance policy.

BLANKET INSURANCE

Coverage for more than one type of prop-erty at one location or one type of property at more than one location. Example: chain stores.

BODILY INJURY LIABILITY COVERAGE

Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.

BOILER AND MACHINERY INSURANCE

Often called Equipment Breakdown, or Sys-tems Breakdown insurance. Commercial in-surance that covers damage caused by the malfunction or breakdown of boilers, and a vast array of other equipment including air conditioners, heating, electrical, telephone and computer systems.

BOND

A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance, a form of surety-ship. Bonds of various types guarantee a payment or a reimbursement for financial losses resulting from dishonesty, failure to perform and other acts.

BOND RATING

An evaluation of a bond’s financial strength, conducted by such major ratings

84 I.I.I. Insurance Handbook

agencies as Standard & Poor’s and Moody’s Investors Service.

BOOK OF BUSINESS

Total amount of insurance on an insurer’s books at a particular point in time.

BROKER

An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to sell variable annuities, which are similar to stock market-based investments.

BURGLARY AND THEFT INSURANCE

Insurance for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple peril policy.

BUSINESS INCOME INSURANCE

Commercial coverage that reimburses a business owner for lost profits and continu-ing fixed expenses during the time that a business must stay closed while the prem-ises are being restored because of physical damage from a covered peril, such as a fire. Business income insurance also may cover financial losses that may occur if civil authorities limit access to an area after a disaster and their actions prevent custom-ers from reaching the business premises. Depending on the policy, civil authorities coverage may start after a waiting period and last for two or more weeks. Also known as business interruption insurance.

BUSINESSOWNERS POLICY/BOP

A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Cover-age is generally cheaper than if purchased through separate insurance policies.

Glossary

C-SHARE VARIABLE ANNUITIES

A form of variable annuity contract where the contract holder pays no sales fee up front or surrender charges. Owners can claim full liquidity at any time.

CAPACITY

The supply of insurance available to meet demand. Capacity depends on the indus-try’s financial ability to accept risk. For an individual insurer, the maximum amount of risk it can underwrite based on its finan-cial condition. The adequacy of an insurer’s capital relative to its exposure to loss is an important measure of solvency. A property/ casualty insurer must maintain a certain level of capital and policyholder surplus to underwrite risks. This capital is known as capacity. When the industry is hit by high losses, such as after the World Trade Center terrorist attack, capacity is diminished. It can be restored by increases in net income, favorable investment returns, reinsuring more risk and or raising additional capi-tal. When there is excess capacity, usually because of a high return on investments, premiums tend to decline as insurers com-pete for market share. As premiums decline, underwriting losses are likely to grow, reducing capacity and causing insurers

to raise rates and tighten conditions and limits in an effort to increase profitability. Policyholder surplus is sometimes used as a measure of capacity.

CAPITAL

Shareholder’s equity (for publicly traded in-surance companies) and retained earnings (for mutual insurance companies). There is no general measure of capital adequacy for property/casualty insurers. Capital adequacy is linked to the riskiness of an insurer’s business. A company underwrit-ing medical device manufacturers needs a

I.I.I. Insurance Handbook 85

Glossary

larger cushion of capital than a company writing Main Street business, for example. (See Risk-based capital; Solvency; Surplus)

CAPITAL MARKETS

The markets in which equities and debt are traded. (See Securitization of insurance risk)

CAPTIVE AGENT

A person who represents only one insur-ance company and is restricted by agree-ment from submitting business to any other company, unless it is first rejected by the agent’s captive company. (See Exclusive agent)

CAPTIVES

Insurers that are created and wholly owned by one or more non-insurers, to provide owners with coverage. A form of self-insur-ance.

CAR YEAR

Equal to 365 days of insured coverage for a single vehicle. It is the standard measure-ment for automobile insurance.

CASE MANAGEMENT

A system of coordinating medical services to treat a patient, improve care and reduce cost. A case manager coordinates health care delivery for patients.

*CASH DIVIDEND OPTION

For participating insurance policies, a divi-dend option under which the insurer sends the policy owner a check in the amount of the policy dividend. (See Dividend; Policy dividend options)

*CASH PAYMENT OPTION

One of several nonforfeiture options included in life insurance policies and some annuity contracts that allows a policy owner to receive the cash surrender value of a life insurance policy or an annuity con-tract in a single payment. Also known as

cash surrender option. (See Cash surrender value; Nonforfeiture options)

*CASH SURRENDER VALUE

For life insurance, the amount, before adjustments for factors such as policy loans, that the owner of a permanent life insurance policy is entitled to receive if the policy does not remain in force until the insured’s death. (2) For annuities, the amount of a deferred annuity’s accumu-lated value, less any surrender charges, that the contract holder is entitled to receive if the policy is surrendered during its accu-mulation period. Also known as cash value and surrender value.

*CASH VALUE

See Cash surrender value.

CATASTROPHE

Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property losses totaling more than a given amount, currently $25 million.

CATASTROPHE BONDS

Risk-based securities that pay high inter-est rates and provide insurance companies with a form of reinsurance to pay losses from a catastrophe such as those caused by a major hurricane. They allow insurance risk to be sold to institutional investors in the form of bonds, thus spreading the risk. (See Securitization of insurance risk)

CATASTROPHE DEDUCTIBLE

A percentage or dollar amount that a homeowner must pay before the insur-ance policy kicks in when a major natural disaster occurs. These large deductibles limit an insurer’s potential losses in such cases, allowing it to insure more property. A property insurer may not be able to buy reinsurance to protect its own bottom line

86 I.I.I. Insurance Handbook

Glossary

unless it keeps its potential maximum losses under a certain level.

CATASTROPHE FACTOR

Probability of catastrophic loss, based on the total number of catastrophes in a state over a 40-year period.

CATASTROPHE MODEL

Using computers, a method to mesh long-term disaster information with current demographic, building and other data to determine the potential cost of natural disasters and other catastrophic losses for a given geographic area.

CATASTROPHE REINSURANCE

Reinsurance for catastrophic losses. The insurance industry is able to absorb the multibillion dollar losses caused by natural and man-made disasters such as hurricanes, earthquakes and terrorist attacks because losses are spread among thousands of companies including catastrophe reinsurers who operate on a global basis. Insurers’ ability and willingness to sell insurance fluctuates with the availability and cost

of catastrophe reinsurance. After major disasters, such as Hurricane Andrew and the World Trade Center terrorist attack, the availability of catastrophe reinsurance becomes extremely limited. Claims deplete reinsurers’ capital and, as a result, companies are more selective in the type and amount of risks they assume. In addition, with available supply limited, prices for reinsurance rise. This contributes to an overall increase in prices for property insurance.

CELLPHONE INSURANCE

Separate insurance provided to cover cell phones for damage or theft. Policies are often sold with the cell phones themselves.

CHARTERED FINANCIAL CONSULTANT/ChFC

A professional designation given by The American College to financial services professionals who complete courses in financial planning.

CHARTERED LIFE UNDERWRITER/CLU

A professional designation by The Ameri-can College for those who pass business examinations on insurance, investments and taxation, and have life insurance plan-ning experience.

CHARTERED PROPERTY/ CASUALTY UNDERWRITER/CPCU

A professional designation given by the American Institute for Chartered Property Casualty Underwriters. National examina-tions and three years of work experience are required.

CLAIMS MADE POLICY

A form of insurance that pays claims presented to the insurer during the term of the policy or within a specific term after its expiration. It limits liability insurers’ exposure to unknown future liabilities. (See Occurrence policy)

COBRA

Short for Consolidated Omnibus Budget Reconciliation Act. A federal law under which group health plans sponsored by employers with 20 or more employees must offer continuation of coverage to employ-ees who leave their jobs and their depen-dents. The employee must pay the entire premium. Coverage can be extended up to 18 months. Surviving dependents can receive longer coverage.

COINSURANCE

In property insurance, requires the policy-holder to carry insurance equal to a speci-fied percentage of the value of property to

I.I.I. Insurance Handbook 87

Glossary

receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policy-holder. For a 20 percent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 percent of losses up to a specified ceiling, the insurer starts paying 100 percent of losses.

COLLATERAL

Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. Also called security.

*COLLATERAL ASSIGNMENT

A temporary transfer of some of the owner-ship rights in a particular property, such as a life insurance policy or an annuity contract, as collateral for a loan. The transfer is made on the condition that upon payment of the debt for which the contract is collateral, all transferred rights shall revert back to the original owner. Contrast with Absolute assign-ment.

COLLISION COVERAGE

Portion of an auto insurance policy that cov-ers the damage to the policyholder’s car from a collision.

COMBINED RATIO

Percentage of each premium dollar a prop-erty/casualty insurer spends on claims and expenses. A decrease in the combined ratio means financial results are improving; an increase means they are deteriorating.

COMMERCIAL AUTOMOBILE INSURANCE

Provides coverage for vehicles that are used primarily in connection with commercial establishments or business activities. While the major coverages are the same, commer-cial auto policies differs from a personal auto

policy in a number of technical respects.

(See Auto Insurance Policy).

COMMERCIAL GENERAL LIABILITY INSURANCE/CGL

A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors.

COMMERCIAL LINES

Products designed for and bought by busi-nesses. Among the major coverages are boiler and machinery, business income, commercial auto, comprehensive general liability, direc-tors and officers liability, fire and allied lines, inland marine, medical malpractice liability, product liability, professional liability, surety and fidelity, and workers compensation. Most of these commercial coverages can be purchased separately except business income, which must be added to a fire insurance (property) policy. (See Commercial multiple peril policy)

COMMERCIAL MULTIPLE PERIL POLICY

Package policy that includes property, boiler and machinery, crime and general liability coverages.

COMMERCIAL PAPER

Short-term, unsecured and, usually, discounted promissory note issued by commercial firms and financial companies often to finance current business. Com-mercial paper, which is rated by debt rating agencies, is sold through dealers or directly placed with an investor.

88 I.I.I. Insurance Handbook

COMMISSION

Fee paid to an agent or insurance salesper-son as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer, and the marketing methods.

Glossary

COMPLETED OPERATIONS COVERAGE

Pays for bodily injury or property damage caused by a completed project or job. Pro-tects a business that sells a service against liability claims.

COMMUNITY RATING LAWS

Enacted in several states on health insur-ance policies. Insurers are required to ac-cept all applicants for coverage and charge all applicants the same premium for the same coverage regardless of age or health. Premiums are based on the rate determined by the geographic region’s health and demographic profile.

*COMMUTATIVE CONTRACT

An agreement under which the contract-ing parties specify the values that they will exchange; moreover, the parties generally exchange items or services that they think are of relatively equal value. Contrast with Aleatory contract.

COMPREHENSIVE COVERAGE

Portion of an auto insurance policy that covers damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods and riots), and theft.

COMPULSORY AUTO INSURANCE

The minimum amount of auto liability insurance that meets a state law. Financial responsibility laws in every state require all automobile drivers to show proof, after an accident, of their ability to pay damages up to the state minimum. In compulsory li-ability states this proof, which is usually in the form of an insurance policy, is required before you can legally drive a car.

COMPETITIVE REPLACEMENT PARTS

See Crash parts; Generic auto parts.

COMPETITIVE STATE FUND

A facility established by a state to sell workers compensation in competition with private insurers.

COMPLAINT RATIO

A measure used by some state insurance departments to track consumer complaints against insurance companies. Generally, it is stated as the number of complaints upheld against an insurance company, as a percentage of premiums written. In some states, complaints from medical providers over the promptness of payments may also be included.

*CONTESTABLE PERIOD

The time during which an insurer has the right to cancel or rescind an insurance policy if the application contained a mate-rial misrepresentation. (See Incontestability provision)

*CONTINGENT BENEFICIARY

The party designated to receive the pro-ceeds of a life insurance policy following the insured’s death if the primary benefi-ciary predeceased the insured. Also known as secondary beneficiary and successor beneficiary. (See Primary beneficiary)

CONTINGENT LIABILITY

Liability of individuals, corporations, or partnerships for accidents caused by people other than employees for whose acts or omissions the corporations or partnerships are responsible.

I.I.I. Insurance Handbook 89

Glossary

*CONVERTIBLE TERM INSURANCE POLICY

A term life insurance policy that gives the policy owner the right to convert the policy to a permanent plan of insurance.

COVERAGE

Synonym for insurance.

CRASH PARTS

Sheet metal parts that are most often dam-aged in a car crash. (See Generic auto parts)

CREDIT

The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.

CREDIT DERIVATIVES

A contract that enables a user, such as a bank, to better manage its credit risk. A way of transferring credit risk to another party.

CREDIT ENHANCEMENT

A technique to lower the interest payments on a bond by raising the issue’s credit rat-ing, often through insurance in the form of a financial guarantee or with standby letters of credit issued by a bank.

CREDIT INSURANCE

Commercial coverage against losses result-ing from the failure of business debtors to pay their obligation to the insured, usually due to insolvency. The coverage is geared to manufacturers, wholesalers and service providers who may be dependent on a few accounts and therefore could lose signifi-cant income in the event of an insolvency.

CREDIT LIFE INSURANCE

Life insurance coverage on a borrower designed to repay the balance of a loan in the event the borrower dies before the loan is repaid. It may also include disablement

and can be offered as an option in connec-tion with credit cards and auto loans.

CREDIT RATING

See Bond rating.

CREDIT SCORE

The number produced by an analysis of an individual’s credit history. The use of credit information affects all consumers in many ways, including getting a job, finding a place to live, securing a loan, getting tele-phone service and buying insurance. Credit history is routinely reviewed by insurers before issuing a commercial policy because businesses in poor financial condition tend to cut back on safety, which can lead to more accidents and more claims. Auto and home insurers may use information in a credit history to produce an insurance score. Insurance scores may be used in underwriting and rating insurance policies. (See Insurance score)

CRIME INSURANCE

Term referring to property coverages for the perils of burglary, theft and robbery.

*CRITICAL ILLNESS (CI) INSURANCE

A type of individual health insurance that pays a lump-sum benefit when the insured is diagnosed with a specified illness. Also known as critical diagnosis insurance. Contrast with Specified disease coverage.

CROP-HAIL INSURANCE

Protection against damage to growing crops from hail, fire or lightning provided by the private market. By contrast, multiple peril crop insurance covers a wider range of yield reducing conditions, such as drought and insect infestation, and is subsidized by the federal government.

*CURRENT ASSUMPTION WHOLE LIFE INSURANCE

See Interest-sensitive insurance.

90 I.I.I. Insurance Handbook

*DEATH BENEFIT

For a life insurance contract, the amount of money paid by an insurer to a beneficiary when a person insured under the life insurance policy dies. (2) For an an-nuity contract, the amount of money paid to a beneficiary if the contract owner dies before the annuity payments begin.

DECLARATION

Part of a property or liability insurance policy that states the name and address of policyholder, property insured, its loca-tion and description, the policy period, premiums and supplemental information. Referred to as the “dec page.”

*DECLINED RISK CLASS

In insurance underwriting, the group of proposed insureds whose impairments or anticipated extra mortality are so great that an insurer cannot provide insurance coverage to them at an affordable cost. Also known as uninsurable class. Contrast with Preferred risk class, Standard risk class and Substandard risk class.

*DECREASING TERM LIFE INSURANCE

Term life insurance that provides a death benefit that decreases in amount over the policy term. Contrast with Increasing term life insurance.

DEDUCTIBLE

The amount of loss paid by the policy-holder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.

Glossary

DEFERRED ANNUITY

An annuity contract, also referred to as an investment annuity, that is purchased ei-ther with a single tax-deferred premium or with periodic tax-deferred premiums over time. Payments begin at a predetermined point in time, such as retirement. Money contributed to such an annuity is intended primarily to grow tax-deferred for future use.

DEFINED BENEFIT PLAN

A retirement plan under which pension benefits are fixed in advance by a formula based generally on years of service to the company multiplied by a specific percent-age of wages, usually average earnings over that period or highest average earnings over the final years with the company.

DEFINED CONTRIBUTION PLAN

An employee benefit plan under which the employer sets up benefit accounts and con-tributions are made to it by the employer and by the employee. The employer usually matches the employee’s contribution up to a stated limit.

DEMAND DEPOSIT

Customer assets that are held in a checking account. Funds can be readily withdrawn by check, “on demand.”

DEMUTUALIZATION

The conversion of insurance companies from mutual companies owned by their policyholders into publicly traded stock companies.

DEPENDENT LIFE INSURANCE

See Family benefit coverage.

DEPOSITORY INSTITUTION

Financial institutions that obtain their funds mainly through deposits from the public. They include commercial banks,

I.I.I. Insurance Handbook 91

Glossary

savings and loan associations, savings banks and credit unions.

DEREGULATION

In insurance, reducing regulatory control over insurance rates and forms. Commer-cial insurance for businesses of a certain size has been deregulated in many states.

DERIVATIVES

Contracts that derive their value from an underlying financial asset, such as publicly traded securities and foreign currencies. Often used as a hedge against changes in value.

DIFFERENCE IN CONDITIONS

Policy designed to fill in gaps in a busi-ness’s commercial property insurance coverage. There is no standard policy. Poli-cies are specifically tailored to the policy-holder’s needs.

DIMINUTION OF VALUE

The idea that a vehicle loses value after it has been damaged in an accident and repaired.

DIRECT PREMIUMS

Property/casualty premiums collected by the insurer from policyholders, before re-insurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.

DIRECT SALES/DIRECT RESPONSE

Method of selling insurance directly to the insured through an insurance company’s own employees, through the mail, by tele-phone or via the Internet. This is in lieu of using captive or exclusive agents.

DIRECT WRITERS

Insurance companies that sell directly to the public using exclusive agents or their own employees, through the mail, by telephone or via the Internet. Large insurers, whether

predominately direct writers or agency com-panies, are increasingly using many different channels to sell insurance. In reinsurance, denotes reinsurers that deal directly with the insurance companies they reinsure without using a broker.

DIRECTORS AND OFFICERS LIABILITY INSURANCE/D&O

Directors and officers liability insurance (D&O) covers directors and officers of a company for negligent acts or omissions and for misleading statements that result in suits against the company. There are a variety of D&O coverages. Corporate reim-bursement coverage indemnifies directors and officers of the organization. Side-A cov-erage provides D&O coverage for personal liability when directors and officers are not indemnified by the firm. Entity coverage, for claims made specifically against the company, is also available. D&O policies may be broadened to include coverage for employment practices liability.

*DISABILITY

In disability insurance, the inability of an insured person to work due to an injury or sickness. Each disability policy has a defini-tion of disability that must be satisfied in order for the insured to receive the policy’s benefits. (See Residual disability; Total dis-ability)

*DISABILITY INCOME INSURANCE

A type of health insurance designed to compensate an insured person for a portion of the income lost because of a disabling injury or illness. Benefit payments are made either weekly or monthly for a speci-fied period during the continuance of an insured’s disability. (See Income protection insurance)

92 I.I.I. Insurance Handbook

*DIVIDEND ACCUMULATIONS OPTION

See Accumulation at interest option.

DIVIDENDS

Money returned to policyholders from an insurance company’s earnings. Considered a partial premium refund rather than a taxable distribution, reflecting the differ-ence between the premium charged and actual losses. Many life insurance policies and some property/casualty policies pay dividends to their owners. Life insurance policies that pay dividends are called par-ticipating policies.

DOMESTIC INSURANCE COMPANY

Term used by a state to refer to any com-pany incorporated there.

*DOUBLE INDEMNITY BENEFIT

An accidental death benefit that is equal to the face amount of a life insurance policy’s basic death benefit and is paid when the insured’s death is the result of an accident as defined in the policy. (See Accidental death benefit/ADB)

DREAD DISEASE COVERAGE

See Specified disease coverage.

EARLY WARNING SYSTEM

A system of measuring insurers’ financial stability set up by insurance industry regu-lators. An example is the Insurance Regula-tory Information System (IRIS), which uses financial ratios to identify insurers in need of regulatory attention.

EARNED PREMIUM

The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.

Glossary

EARTHQUAKE INSURANCE

Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement ex-ists because earthquakes are not covered by standard homeowners or most business policies.

ECONOMIC LOSS

Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings, medical expenses, funeral expenses, the cost of restoring or replacing property and legal expenses. It does not include noneconomic losses, such as pain caused by an injury.

ELECTRONIC COMMERCE/ E-COMMERCE

The sale of products such as insurance over the Internet.

ELIMINATION PERIOD

A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.

EMPLOYEE DISHONESTY COVERAGE

Covers direct losses and damage to busi-nesses resulting from the dishonest acts of employees. (See Fidelity bond)

EMPLOYEE RETIREMENT INCOME SECURITY ACT/ERISA

Federal legislation that protects employees by establishing minimum standards for private pension and welfare plans.

EMPLOYER’S LIABILITY

Part B of the workers compensation policy that provides coverage for lawsuits filed by injured employees who, under certain circumstances, can sue under common law. (See Exclusive remedy)

I.I.I. Insurance Handbook 93

Glossary

EMPLOYMENT PRACTICES LIABILITY COVERAGE

Liability insurance for employers that cov-ers wrongful termination, discrimination and other violations of employees’ legal rights.

ENDORSEMENT

A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider.

*ENDOWMENT INSURANCE

Life insurance that provides a policy ben-efit payable either when the insured dies or on a stated date if the insured is still alive on that date.

ENVIRONMENTAL IMPAIRMENT LIABILITY COVERAGE

A form of insurance designed to cover losses and liabilities arising from damage to property caused by pollution.

ERRORS AND OMISSIONS COVERAGE/E&O

A professional liability policy covering the policyholder for negligent acts and omis-sions that may harm his or her clients.

ESCROW ACCOUNT

Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.

EXCESS AND SURPLUS LINES

Property/casualty coverage that isn’t avail-able from insurers licensed by the state (called admitted insurers) and must be pur-chased from a nonadmitted carrier.

EXCESS OF LOSS REINSURANCE

A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a specified portion of a claim and the reinsurer to pay all or a part of the claim above that amount.

EQUITY

In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.

EXCLUSION

A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.

EQUITY INDEXED ANNUITY

Nontraditional fixed annuity. The specified rate of interest guarantees a fixed mini-mum rate of interest like traditional fixed annuities. At the same time, additional interest may be credited to policy values based upon positive changes, if any, in an established index such as the S&P 500. The amount of additional interest depends upon the particular design of the policy. They are sold by licensed insurance agents and regulated by state insurance depart-ments.

EXCLUSIVE AGENT

A captive agent, or a person who repre-sents only one insurance company and is restricted by agreement from submitting business to any other company unless it is first rejected by the agent’s company. (See Captive agent)

EXCLUSIVE REMEDY

Part of the social contract that forms the basis for workers compensation statutes under which employers are responsible for work-related injury and disease, regardless of whether it was the employee’s fault and in return the injured employee gives up the right to sue when the employer’s negli-gence causes the harm.

94 I.I.I. Insurance Handbook

EXPENSE RATIO

Percentage of each premium dollar that goes to insurers’ expenses including over-head, marketing and commissions.

EXPERIENCE

Record of losses.

EXPOSURE

Possibility of loss.

EXTENDED COVERAGE

An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.

EXTENDED REPLACEMENT COST COVERAGE

Pays a certain amount above the policy limit to replace a damaged home, gener-ally 120 percent or 125 percent. Similar to a guaranteed replacement cost policy, which has no percentage limits. Most homeowner policy limits track inflation in building costs. Guaranteed and extended replacement cost policies are designed to protect the policyholder after a major di-saster when the high demand for building contractors and materials can push up the normal cost of reconstruction. (See Guaran-teed replacement cost coverage)

*EXTENDED TERM INSURANCE OPTION

One of several nonforfeiture options in-cluded in life insurance policies that allows the owner of a policy with a cash value to discontinue premium payments and to use the policy’s net cash value to purchase term insurance for the full coverage amount pro-vided under the original policy for as long a term as the net cash value can provide. (See Nonforfeiture options)

Glossary

For definitions of 401(k) Plan, 403(b) Plan, and 529 Savings Plans, see page 78.

*FACE AMOUNT

For a fixed-amount whole life insurance policy, the amount of the death benefit payable if the insured person dies while the policy is in force.

FACULTATIVE REINSURANCE

A reinsurance policy that provides an insurer with coverage for specific indi-vidual risks that are unusual or so large that they aren’t covered in the insurance company’s reinsurance treaties. This can include policies for jumbo jets or oil rigs. Reinsurers have no obligation to take on facultative reinsurance, but can assess each risk individually. By contrast, under treaty reinsurance, the reinsurer agrees to assume a certain percentage of entire classes of business, such as various kinds of auto, up to preset limits.

FAIR ACCESS TO INSURANCE REQUIREMENTS PLANS/ FAIR PLANS

Insurance pools that sell property insur-ance to people who can’t buy it in the voluntary market because of high risk over which they may have no control. FAIR Plans, which exist in 28 states and the District of Columbia, insure fire, vandal-ism, riot and windstorm losses, and some sell homeowners insurance which includes liability. Plans vary by state, but all require property insurers licensed in a state to par-ticipate in the pool and share in the profits and losses. (See Residual market)

*FAMILY BENEFIT COVERAGE

A type of supplementary benefit rider offered in conjunction with a life insur-ance policy that insures the lives of the

I.I.I. Insurance Handbook 95

Glossary

insured’s spouse and children. Also known as dependent life insurance and spouse and children’s insurance rider.

FARMOWNERS-RANCHOWNERS INSURANCE

Package policy that protects the policy-holder against named perils and liabilities and usually covers homes and their con-tents, along with barns, stables and other structures.

FEDERAL FUNDS

Reserve balances that depository insti-tutions lend each other, usually on an overnight basis. In addition, Federal funds include certain other kinds of borrowing by depository institutions from each other and from federal agencies.

FEDERAL INSURANCE

ADMINISTRATION/FIA

Federal agency in charge of administering the National Flood Insurance Program. It does not regulate the insurance industry.

FEDERAL RESERVE BOARD

Seven member board that supervises the banking system by issuing regulations controlling bank holding companies and federal laws over the banking industry. It also controls and oversees the U.S. mon-etary system and credit supply.

FIDELITY BOND

A form of protection that covers policy-holders for losses that they incur as a result of fraudulent acts by specified individu-als. It usually insures a business for losses caused by the dishonest acts of its employ-ees.

FIDUCIARY BOND

A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees,

that guarantees the performance of their responsibilities.

FIDUCIARY LIABILITY

Legal responsibility of a fiduciary to safe-guard assets of beneficiaries. A fiduciary, for example a pension fund manager, is required to manage investments held in trust in the best interest of beneficiaries. Fi-duciary liability insurance covers breaches of fiduciary duty such as misstatements or misleading statements, errors and omis-sions.

FILE-AND-USE STATES

States where insurers must file rate changes with their regulators, but don’t have to wait for approval to put them into effect.

FINANCIAL GUARANTEE INSURANCE

Covers losses from specific financial trans-actions and guarantees that investors in debt instruments, such as municipal bonds, receive timely payment of principal and interest if there is a default. Raises the credit rating of debt to which the guarantee is attached. Investment bankers who sell asset-backed securities, securities backed by loan portfolios, use this insurance to enhance marketability. (See Municipal bond insurance)

FINANCIAL RESPONSIBILITY LAW

A state law requiring that all automobile drivers show proof that they can pay dam-ages up to a minimum amount if involved in an auto accident. Varies from state to state but can be met by carrying a mini-mum amount of auto liability insurance. (See Compulsory auto insurance)

FINITE RISK REINSURANCE

Contract under which the ultimate li-ability of the reinsurer is capped and on which anticipated investment income is expressly acknowledged as an underwrit-

96 I.I.I. Insurance Handbook

ing component. Also known as financial reinsurance because this type of coverage is often bought to improve the balance sheet effects of statutory accounting principles.

FIRE INSURANCE

Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.

FIRST-PARTY COVERAGE

Coverage for the policyholder’s own prop-erty or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and, where the injured person is not able to provide services such as child care, for substitute services. (See No-fault; Third-party coverage)

FIXED ANNUITY

An annuity that guarantees a specific rate of return. In the case of a deferred annuity, a minimum rate of interest is guaranteed during the savings phase. During the pay-ment phase, a fixed amount of income, paid on a regular schedule, is guaranteed.

*FLEXIBLE PREMIUM

A premium payment method sometimes offered in connection with annuities and with some types of life insurance that al-lows the contract owner or policy owner to alter the amount and the frequency of pay-ments, within specified boundaries defined by the insurer and the law.

FLOATER

Attached to a homeowners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewelry, musical instruments and furs. It

Glossary

provides broader coverage than a regular homeowners policy for these items.

FLOOD INSURANCE

Coverage for flood damage is available from the federal government under the Na-tional Flood Insurance Program but is sold by licensed insurance agents. Flood cover-age is excluded under homeowners policies and many commercial property policies. However, flood damage is covered under the comprehensive portion of an auto in-surance policy. (See Adverse selection)

FORCED PLACE INSURANCE

Insurance purchased by a bank or creditor on an uninsured debtor’s behalf so if the property is damaged, funding is available to repair it.

FOREIGN INSURANCE COMPANY

Name given to an insurance company based in one state by the other states in which it does business.

FRAUD

Intentional lying or concealment by policy-holders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents and brokers for financial gain.

*FRATERNAL BENEFIT SOCIETY

See Fraternal insurer.

*FRATERNAL INSURER

A nonprofit organization that is operated solely for the benefit of its members and that provides its members with social and insurance benefits. Also known as fraternal benefit society.

FREE-LOOK PERIOD

A period of up to one month during which the purchaser of an annuity can cancel the

I.I.I. Insurance Handbook 97

Glossary

contract with no penalty. Rules vary by state.

FREQUENCY

Number of times a loss occurs. One of the criteria used in calculating premium rates.

FRONTING

A procedure in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange for a commission. Often, the fronting insurer is licensed to do business in a state or country where the risk is located, but the reinsurer is not. The reinsurer in this scenario is often a captive or an independent insurance company that cannot sell insurance directly in a particu-lar country.

FUTURES

Agreement to buy a security for a set price at a certain date. Futures contracts usually involve commodities, indexes or financial futures.

GAP INSURANCE

An automobile insurance option, available in some states, that covers the difference between a car’s actual cash value when it is stolen or wrecked and the amount the con-sumer owes the leasing or finance company. Mainly used for leased cars. (See Actual cash value)

*GENERAL ACCOUNT

An undivided investment account in which insurers maintain funds that support contractual obligations for guaranteed insurance products such as whole life insur-ance or fixed-rate annuities. Contrast with Separate account.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES/GAAP

Generally accepted accounting principles (GAAP) accounting is used in financial statements that publicly held companies prepare for the Securities and Exchange Commission. (See Statutory accounting principles/SAP)

GENERIC AUTO PARTS

Auto crash parts produced by firms that are not associated with car manufacturers. Insurers consider these parts, when certi-fied, at least as good as those that come from the original equipment manufacturer (OEM). They are often cheaper than the identical part produced by the OEM. (See Crash parts; Aftermarket parts; Competi-tive replacement parts; Original equipment manufacturer parts/OEM)

GLASS INSURANCE

Coverage for glass breakage caused by all risks; fire and war are sometimes excluded. Insurance can be bought for windows, structural glass, leaded glass and mirrors. Available with or without a deductible.

*GRACE PERIOD

For insurance premium payments, a specified length of time following a pre-mium due date within which the renewal premium may be paid without penalty. The length of the grace period is specified in a grace period provision that is found in a life insurance, health insurance, or annuity policy. (2) For purchases made on credit, a period of time between the date of a purchase and the date the lender begins to charge interest during which no interest accrues.

*GRADED PREMIUM POLICY

A type of modified-premium whole life policy that calls for three or more levels of annual premium payment amounts,

98 I.I.I. Insurance Handbook

increasing at specified points in time—such as every three years—until reaching the amount to be paid as a level premium for the rest of the life of the policy.

GRADUATED DRIVER LICENSES

Licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict nighttime driving. Young drivers receive a learner’s permit, followed by a provisional license, before they can receive a standard driver’s license.

GRAMM-LEACH-BLILEY ACT

Financial services legislation, passed by Congress in 1999, that removed Depression era prohibitions against the combination of commercial banking and investment banking activities. It allows insurance companies, banks and securities firms to engage in each others’ activities and own one another.

*GROSS ANNUITY COST

A monetary amount equal to the present value of future periodic income payments under an annuity contract, calculated on a gross basis, with a specific provision for expense loading. Contrast with Net annuity cost.

GROUP INSURANCE

A single policy covering a group of indi-viduals, usually employees of the same company or members of the same asso-ciation and their dependents. Coverage occurs under a master policy issued to the employer or association.

GUARANTEE PERIOD

Period during which the level of interest specified under a fixed annuity is guaran-teed.

Glossary

GUARANTEED DEATH BENEFIT

Basic death benefits guaranteed under vari-able annuity contracts.

GUARANTEED INCOME CONTRACT/GIC

Often an option in an employer-sponsored retirement savings plan. Contract between an insurance company and the plan that guarantees a stated rate of return on in-vested capital over the life of the contract.

*GUARANTEED INSURABILITY (GI) BENEFIT

A supplementary life insurance policy benefit often provided through a policy rider that gives the policy owner the right to purchase additional insurance of the same type as the life insurance policy that provides the GI benefit on specified option dates. Also known as guaranteed insurabil-ity option (GIO).

GUARANTEED LIVING BENEFIT

A guarantee in a variable annuity that a certain level of annuity payment will be maintained. Serves as a protection against investment risks. Several types exists.

*GUARANTEED RENEWABLE POLICY

An individual health insurance policy that requires the insurer to renew the policy—as long as premium payments are made—at least until the insured attains a specified age. The insurer can change premium rates for broad classes of insureds but not for an individual insured. Contrast with Noncan-cellable and Guaranteed renewable policy.

GUARANTEED REPLACEMENT COST COVERAGE

Homeowners policy that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit. (See Extended replacement cost coverage)

I.I.I. Insurance Handbook 99

Glossary

GUARANTY FUND

The mechanism by which solvent insur-ers ensure that some of the policyholder and third-party claims against insurance companies that fail are paid. Such funds are required in all 50 states, the District of Co-lumbia and Puerto Rico, but the type and amount of claim covered by the fund varies from state to state. Some states pay policy-holders’ unearned premiums—the portion of the premium for which no coverage was provided because the company was insol-vent. Some have deductibles. Most states have no limits on workers compensation payments. Guaranty funds are supported by assessments on insurers doing business in the state.

GUN LIABILITY

A legal concept that holds gun manufac-turers liable for the cost of injuries caused by guns. Several cities have filed lawsuits based on this concept.

HACKER INSURANCE

A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.

HARD MARKET

A seller’s market in which insurance is ex-pensive and in short supply. (See Property/ casualty insurance cycle)

HOMEOWNERS INSURANCE POLICY

The typical homeowners insurance policy covers the house, the garage and other structures on the property, as well as personal possessions inside the house such as furniture, appliances and clothing, against a wide variety of perils including windstorms, fire and theft. The extent of the perils covered depends on the type of policy. An all-risk policy offers the broad-

est coverage. This covers all perils except those specifically excluded in the policy. Homeowners insurance also covers ad-ditional living expenses. Known as Loss of Use, this provision in the policy reimburses the policyholder for the extra cost of living elsewhere while the house is being restored after a disaster. The liability portion of the policy covers the homeowner for acciden-tal injuries caused to third parties and/

or their property, such as a guest slipping and falling down improperly maintained stairs. Coverage for flood and earthquake damage is excluded and must be purchased separately. (See Flood insurance; Earthquake insurance)

HOUSE YEAR

Equal to 365 days of insured coverage for a single dwelling. It is the standard measure-ment for homeowners insurance.

HURRICANE DEDUCTIBLE

A percentage or dollar amount added to a home-owners insurance policy to limit an insurer’s exposure to loss from a hurricane. Higher deductibles are instituted in higher risk areas, such as coastal regions. Specific details, such as the intensity of the storm necessary for the deductible to be triggered and the extent of the high risk area, vary from insurer to insurer and state to state.

HYBRID ANNUITY

An annuity with features of both fixed and variable annuities. (See Fixed annuity; vari-able annuity)

IDENTITY THEFT INSURANCE

Coverage for expenses incurred as the re-sult of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost income from time taken off from work to meet with law enforcement person-

100 I.I.I. Insurance Handbook

nel or credit agencies, fees for reapplying for loans and attorney’s fees to defend against lawsuits and remove criminal or civil judgments.

IMMEDIATE ANNUITY

A product purchased with a lump sum, usually at the time retirement begins or afterwards. Payments begin within about a year. Immediate annuities can be either fixed or variable.

*INCOME DATE

The date on which an insurer begins or is scheduled to begin making annuity benefit payments under an annuity contract. Also known as maturity date and annuity date.

*INCOME PROTECTION INSURANCE

A type of disability income coverage that provides an income benefit both, while the insured is totally disabled and unable to work and while he is able to work, but be-cause of a disability, is earning less than he earned before being disabled. Also known as residual disability insurance.

*INCONTESTABILITY PROVISION

An insurance and annuity policy provi-sion that limits the time within which an insurer has the right to avoid the contract on the ground of material misrepresen-tation in the application for the policy. Also known as incontestable clause. (See Contestable period; Time limit on certain defenses provision)

*INCREASING TERM LIFE INSURANCE

A type of term life insurance that provides a death benefit that increases by some specified amount or percentage at stated intervals over the policy term. Contrast with Decreasing term life insurance.

Glossary

INCURRED BUT NOT REPORTED LOSSES/IBNR

Losses that are not filed with the insurer or reinsurer until years after the policy is sold. Some liability claims may be filed long after the event that caused the injury to occur. Asbestos-related diseases, for ex-ample, do not show up until decades after the exposure. IBNR also refers to estimates made about claims already reported but where the full extent of the injury is not yet known, such as a workers compensa-tion claim where the degree to which work-related injuries prevents a worker from earning what he or she earned before the injury unfolds over time. Insurance compa-nies regularly adjust reserves for such losses as new information becomes available.

INCURRED LOSSES

Losses occurring within a fixed period, whether or not adjusted or paid during the same period.

INDEMNIFY

Provide financial compensation for losses.

INDEPENDENT AGENT

Agent who is self-employed, is paid on commission, and represents several insur-ance companies. (See Captive agent)

*INDETERMINATE PREMIUM LIFE INSURANCE POLICY

A type of nonparticipating whole life policy that specifies two premium rates—both a maximum guaranteed rate and a lower rate. The insurer charges the lower premium rate when the policy is purchased and guaran-tees that rate for at least a stated period of time, after which the insurer uses its actual mortality, interest, and expense experience to establish a new premium rate that may be higher or lower than the previous pre-mium rate. Also known as nonguaranteed

I.I.I. Insurance Handbook 101

Glossary

premium life insurance policy and variable premium life insurance policy.

such as fine art and jewelry are included in this category. (See Floater)

INDEXED LIFE INSURANCE CONTRACT

An arrangement similar to a universal life contract. Death benefit amounts are based on the amount selected by the policyholder plus the account value. The policyholder’s account value is linked to cumulative re-turns based on the S&P 500 index or some other tied index. An essential component of the contract is that the cash surrender value is also linked to a tied index. Typical-ly, the tied index doesn’t include dividends. There may be additional constraints on the amount that the insurance company will credit as interest under this policy.

INDIVIDUAL RETIREMENT ACCOUNT/IRA

A tax-deductible savings plan for those who are self-employed, or those whose earnings are below a certain level or whose employers do not offer retirement plans. Others may make limited contributions on a tax-deferred basis. The Roth IRA, a special kind of retirement account created in 1997, may offer greater tax benefits to certain individuals.

INFLATION GUARD CLAUSE

A provision added to a homeowners insur-ance policy that automatically adjusts the coverage limit on the dwelling each time the policy is renewed to reflect current construction costs.

INLAND MARINE INSURANCE

This broad type of coverage was developed for shipments that do not involve ocean transport. Covers articles in transit by all forms of land and air transportation as well as bridges, tunnels and other means of transportation and communication. Float-ers that cover expensive personal items

INSOLVENCY

Insurer’s inability to pay debts. Insurance insolvency standards and the regulatory ac-tions taken vary from state to state. When regulators deem an insurance company is in danger of becoming insolvent, they can take one of three actions: place a company in conservatorship or rehabilitation, if the company can be saved, or in liquidation, if salvage is deemed impossible. The differ-ence between the first two options is one of degree—regulators guide companies in conservatorship but direct those in rehabili-tation. Typically the first sign of problems is inability to pass the financial tests regula-tors administer as a routine procedure. (See Liquidation; Risk-based capital)

INSTITUTIONAL INVESTOR

An organization such as a bank or insur-ance company that buys and sells large quantities of securities.

*INSURABLE INTEREST

In insurance, a person exhibits an insurable interest in a potential loss if that person will suffer a genuine economic loss if the event insured against occurs. Without the presence of insurable interest, an insurance contract is not formed for a lawful purpose and, thus, is not a valid contract.

INSURABLE RISK

Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predict-able. The insurance company also must be able to come up with a reasonable price for the insurance.

102 I.I.I. Insurance Handbook

INSURANCE

A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.

INSURANCE POOL

A group of insurance companies that pools its assets, enabling them to provide an amount of insurance substantially more than can be provided by individual com-panies to ensure large risks such as nuclear power stations. Pools may be formed voluntarily or mandated by the state to insure risks that cannot be covered in the voluntary market such as coastal properties subject to hurricanes. (See Beach and wind-storm plans; Fair access to insurance require-ments plans/FAIR plans; Joint underwriting association/JUA)

INSURANCE REGULATORY INFORMATION SYSTEM/IRIS

Uses financial ratios to measure insur-ers’ financial strength. Developed by the National Association of Insurance Com-missioners. Each individual state insurance department chooses how to use IRIS.

INSURANCE SCORE

Insurance scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bank-ruptcy filing has been made. An insurance score is a measure of how well consum-ers manage their financial affairs, not of their financial assets. It does not include information about income or race. Studies have shown that people who manage their money well tend also to manage their most important asset, their home, well. And people who manage their money respon-

Glossary

sibly also tend to drive a car responsibly. Some insurance companies use insurance scores as an insurance underwriting and rating tool.

INSURANCE-TO-VALUE

Insurance written in an amount approxi-mating the value of the insured property.

INTEGRATED BENEFITS

Coverage where the distinction between job-related and non-occupational illnesses or injuries is eliminated and workers com-pensation and general health coverage are combined. Legal obstacles exist, however, because the two coverages are administered separately. Previously called twenty-four hour coverage.

*INTEREST-ADJUSTED COST COMPARISON INDEX

A cost comparison index used to com-pare life insurance policy costs that takes into account the time value of money. By comparing the index numbers derived for similar life insurance policies, a consumer has some basis on which to compare the costs of the policies. (See Net payment cost comparison index; Surrender cost compari-son index)

*INTEREST-SENSITIVE INSURANCE

A general category of insurance products in which the face amount and/or the cash value vary according to the insurer’s invest-ment earnings.

INTERMEDIATION

The process of bringing savers, investors and borrowers together so that savers and investors can obtain a return on their money and borrowers can use the money to finance their purchases or projects through loans.

I.I.I. Insurance Handbook 103

Glossary

INTERNET INSURER

An insurer that sells exclusively via the Internet.

surance and various commercial coverages, such as medical malpractice. (See Assigned risk plans; Residual market)

INTERNET LIABILITY INSURANCE

Coverage designed to protect businesses from liabilities that arise from the conduct-ing of business over the Internet, including copyright infringement, defamation and violation of privacy.

INVESTMENT ANNUITY

See Deferred annuity.

INVESTMENT INCOME

Income generated by the investment of assets. Insurers have two sources of income, underwriting (premiums less claims and ex-penses) and investment income. The latter can offset underwriting operations, which are frequently unprofitable.

*IRREVOCABLE BENEFICIARY

A life insurance policy beneficiary who has a vested interest in the policy proceeds even during the insured’s lifetime because the policy owner has the right to change the beneficiary designation only after obtain-ing the beneficiary’s consent. Contrast with Revocable beneficiary.

JOINT AND SURVIVOR ANNUITY

An annuity with two annuitants, usually spouses. Payments continue until the death of the longest living of the two.

JOINT UNDERWRITING ASSOCIATION/JUA

Insurers that join together to provide coverage for a particular type of risk or size of exposure, when there are difficulties in obtaining coverage in the regular market, and which share in the profits and losses associated with the program. JUAs may be set up to provide auto and homeowners in-

JUNK BONDS

Corporate bonds with credit ratings of BB or less. They pay a higher yield than invest-ment grade bonds because issuers have

a higher perceived risk of default. Such bonds involve market risk that could force investors, including insurers, to sell the bonds when their value is low. Most states place limits on insurers’ investments in these bonds. In general, because property/ casualty insurers can be called upon to provide huge sums of money immediately after a disaster, their investments must be liquid. Less than 2 percent are in real estate and a similarly small percent are in junk bonds.

JOINT AND SURVIVOR ANNUITY

An annuity with two annuitants, usually spouses. Payments continue until the death of the longest living of the two.

KEY PERSON INSURANCE

Insurance on the life or health of a key in-dividual whose services are essential to the continuing success of a business and whose death or disability could cause the firm a substantial financial loss.

KIDNAP/RANSOM INSURANCE

Coverage up to specific limits for the cost of ransom or extortion payments and related expenses. Often bought by inter-national corporations to cover employees. Most policies have large deductibles and may exclude certain geographic areas. Some policies require that the policyholder not reveal the existence of the coverage.

104 I.I.I. Insurance Handbook

L-SHARE VARIABLE ANNUITIES

A form of variable annuity contract usually with short surrender periods and higher mortality and expense risk charges.

LADDERING

A technique that consists of staggering the maturity dates and the mix of different types of bonds.

*LAPSE

The termination of an insurance policy because a renewal premium is not paid by the end of the grace period.

LAW OF LARGE NUMBERS

The theory of probability on which the business of insurance is based. Simply put, this mathematical premise says that the larger the group of units insured, such as sport-utility vehicles, the more accurate the predictions of loss will be.

*LEVEL PREMIUM POLICIES

Premiums paid for a life insurance policy or for a deferred annuity that remain the same each year that the contract is in force. Contrast with Modified premium policies and Single premium policies.

LIABILITY INSURANCE

Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to an-other person.

*LIFE ANNUITY

A type of annuity contract that guarantees periodic income payments throughout the lifetime of a named individual—the annuitant. If a life annuity provides no further benefits after the death of the an-nuitant, the annuity is known as a straight life annuity. However, some life annuities provide that income payments will be

Glossary

paid either for the life of the annuitant or for a guaranteed period—life income with period certain—or at least until a guaran-teed amount has been paid—life income with refund annuity. (See Life annuity with period certain; Life income with refund an-nuity; Straight life annuity)

*LIFE ANNUITY WITH PERIOD CERTAIN

A type of annuity contract that guarantees periodic income payments throughout the lifetime of a named individual—the annuitant—and guarantees that the pay-ments will continue for at least a specified period. If the annuitant dies before the end of that specified period, the payments will continue to be paid until the end of the period to a beneficiary designated by the annuitant. (See Life annuity)

*LIFE INCOME WITH REFUND ANNUITY

A type of annuity contract that guaran-tees specified periodic income payments throughout the lifetime of a named indi-vidual—the annuitant—and guarantees that a refund will be made if the annuitant dies before the total of the periodic pay-ments made equals the amount paid for the annuity. Also known as refund annuity. (See Life annuity)

LIFE INSURANCE

Protection against the death of a policy-holder in the form of a payment to a ben-eficiary. (See Ordinary life insurance; Term insurance; Variable life insurance; Whole life insurance)

LIMITED PAYMENT LIFE INSURANCE

Life insurance policy with premiums that are fully paid up within a stated period of time, such as 20 years.

I.I.I. Insurance Handbook 105

Glossary

LIMITS

Maximum amount of insurance that can be paid for a covered loss.

LINE

Type or kind of insurance.

LIQUIDATION

Enables the state insurance department as liquidator or its appointed deputy to wind up the insurance company’s affairs by sell-ing its assets and settling claims upon those assets. After receiving the liquidation order, the liquidator notifies insurance depart-ments in other states and state guaranty funds of the liquidation proceedings. Such insurance company liquidations are not subject to the Federal Bankruptcy Code but to each state’s liquidation statutes.

LIQUIDITY

The ability and speed with which a security can be converted into cash.

LIQUOR LIABILITY

Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.

LIVING BENEFIT RIDER

An addition to a policy that enables early payout of anticipated death benefits. The rider affords terminally ill policyholders an additional source of funds to pay medical bills and maintain their lifestyle.

LLOYD’S OF LONDON

A marketplace where underwriting syndi-cates, or mini-insurers, gather to sell insur-ance policies and reinsurance. Each syn-dicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyd’s market is a major player in the international reinsurance market as well as a primary market for marine insurance and large risks. Originally, Lloyd’s was a London coffee house in the 1600s patronized by

shipowners who insured each other’s hulls and cargoes. As Lloyd’s developed, wealthy individuals, called “Names,” placed their personal assets behind insurance risks as a business venture. Increasingly since the 1990s, most of the capital comes from corporations.

LLOYDS

Corporation formed to market services of a group of underwriters. Does not issue insur-ance policies or provide insurance protec-tion. Insurance is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyd’s of London, and is found primarily in Texas.

LONG-TERM CARE INSURANCE

Long-term care (LTC) insurance pays for services to help individuals who are unable to perform certain activities of daily living without assistance, or require supervision due to a cognitive impairment such as Alzheimer’s disease. LTC is available as indi-vidual insurance or through an employer-sponsored or association plan.

*LONG-TERM DISABILITY INCOME INSURANCE

A type of disability income insurance that provides disability income benefits after short-term disability income benefits termi-nate and continues until the earlier of the date when the insured person returns to work, dies, or becomes eligible for pension benefits. Contrast with Short-term disability income insurance.

LOSS

A reduction in the quality or value of a property, or a legal liability.

LOSS ADJUSTMENT EXPENSES

The sum insurers pay for investigating and settling insurance claims, including the cost of defending a lawsuit in court.

106 I.I.I. Insurance Handbook

LOSS COSTS

The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision for expenses, profit and contingencies.

LOSS OF USE

A provision in homeowners and renters insurance policies that reimburses policy-holders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.

LOSS RATIO

Percentage of each premium dollar an insurer spends on claims.

LOSS RESERVES

The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.

MALPRACTICE INSURANCE

Professional liability coverage for physi-cians, lawyers, and other specialists against suits alleging negligence or errors and omissions that have harmed clients.

MANAGED CARE

Arrangement between an employer or insurer and selected providers to provide comprehensive health care at a discount to members of the insured group and coordi-nate the financing and delivery of health care. Managed care uses medical protocols and procedures agreed on by the medical profession to be cost effective, also known as medical practice guidelines.

Glossary

MANUAL

A book published by an insurance or bond-ing company or a rating association or bureau that gives rates, classifications and underwriting rules.

MARINE INSURANCE

Coverage for goods in transit, and for the commercial vehicles that transport them, on water and over land. The term may apply to inland marine but more generally applies to ocean marine insurance. Covers damage or destruction of a ship’s hull and cargo and perils include collision, sinking, capsizing, being stranded, fire, piracy and jettisoning cargo to save other property. Wear and tear, dampness, mold, and war are not included. (See Inland marine; Ocean marine)

*MATURITY DATE

For endowment in insurance, the date on which an insurer will pay the face amount of an endowment policy to the policy owner if the insured is still living.

In investing, the date on which a bond issuer must repay to the bondholder the amount originally borrowed. (3) For an an-nuity, the date on which the insurer begins to make annuity payments. Also known as income date.

McCARRAN-FERGUSON ACT

Federal law signed in 1945 in which Con-gress declared that states would continue to regulate the insurance business. Grants insurers a limited exemption from federal antitrust legislation.

MEDIATION

Nonbinding procedure in which a third party attempts to resolve a conflict between two other parties.

MEDICAID

A federal/state public assistance program created in 1965 and administered by

I.I.I. Insurance Handbook 107

Glossary

the states for people whose income and resources are insufficient to pay for health care.

*MEDICAL INFORMATION BUREAU

See MIB, Inc.

MEDICAL MALPRACTICE INSURANCE

See Malpractice insurance.

MEDICAL PAYMENTS INSURANCE

A coverage in which the insurer agrees to reimburse the insured and others up to a certain limit for medical or funeral ex-penses as a result of bodily injury or death by accident. Payments are without regard to fault.

MEDICAL UTILIZATION REVIEW

The practice used by insurance companies to review claims for medical treatment.

MEDICARE

Federal program for people 65 or older that pays part of the costs associated with hos-pitalization, surgery, doctors’ bills, home health care and skilled nursing care.

MEDIGAP/MEDSUP

Policies that supplement federal insurance benefits particularly for those covered under Medicare.

*MIB, INC.

A nonprofit organization established to provide information to insurers about impairments that applicants have admit-ted to, or that other insurers have detected, in connection with previous applications for insurance. Formerly known as Medical Information Bureau.

from standard homeowners policies, as are other forms of earth movement.

*MISREPRESENTATION

A false or misleading statement. (1) In insurance sales, a false or misleading state-ment made by a sales agent to induce a cus-tomer to purchase insurance is a prohibited sales practice. (2) In insurance underwrit-ing, a false or misleading statement by an insurance applicant may provide a basis for the insurer to avoid the policy.

*MISSTATEMENT OF AGE OR SEX PROVISION

A life insurance, health insurance, and an-nuity policy provision that describes how policy benefits will be adjusted if the age or sex of the insured has been misstated in the insurance application. Typically, the benefits payable will be those that the pre-miums paid would have purchased for the correct age or sex.

*MODIFIED PREMIUM POLICIES

An insurance policy for which the policy owner first pays a lower premium than she would for a similar level premium policy for a specified initial period and then pays a higher premium than she would for a similar level premium policy. Contrast with Level premium policies and Single pre-mium policies.

MONEY SUPPLY

Total supply of money in the economy, composed of currency in circulation and deposits in savings and checking accounts. By changing the interest rates the Federal Reserve seeks to adjust the money supply to maintain a strong economy.

MINE SUBSIDENCE COVERAGE

An endorsement to a homeowners insur-ance policy, available in some states, for losses to a home caused by the land under a house sinking into a mine shaft. Excluded

*MORAL HAZARD

The possibility that a person may act dis-honestly in an insurance transaction.

108 I.I.I. Insurance Handbook

*MORBIDITY RATE

The rate at which sickness and injury occur within a defined group of people. Insurers base health insurance premiums in part on the morbidity rate for a proposed insured’s age group. Contrast with Mortality rate.

MORTALITY AND EXPENSE (M&E) RISK CHARGE

A fee that covers such annuity contract guarantees as death benefits.

*MORTALITY RATE

A percentage rate at which death occurs among a defined group of people of a specified age and sometimes of a specified gender. Insurers base the premiums for life insurance in part on the mortality rate for a proposed insured’s age group. Contrast with Morbidity rate.

MORTGAGE GUARANTEE INSURANCE

Coverage for the mortgagee (usually a financial institution) in the event that a mortgage holder defaults on a loan. Also called private mortgage insurance (PMI).

MORTGAGE INSURANCE

A form of decreasing term insurance that covers the life of a person taking out a mortgage. Death benefits provide for pay-ment of the outstanding balance of the loan. Coverage is in decreasing term insur-ance, so the amount of coverage decreases as the debt decreases. A variant, mortgage unemployment insurance pays the mort-gage of a policyholder who becomes invol-untarily unemployed. (See Term insurance)

MORTGAGE-BACKED SECURITIES

Investment grade securities backed by a pool of mortgages. The issuer uses the cash flow from mortgages to pay interest on the bonds.

Glossary

MULTIPLE PERIL POLICY

A package policy, such as a homeowners or business insurance policy, that provides coverage against several different perils. It also refers to the combination of property and liability coverage in one policy. In the early days of insurance, coverages for prop-erty damage and liability were purchased separately.

MUNICIPAL BOND INSURANCE

Coverage that guarantees bondholders timely payment of interest and principal even if the issuer of the bonds defaults. Offered by insurance companies with high credit ratings, the coverage raises the credit rating of a municipality offering the bond to that of the insurance company. It allows a municipality to raise money at lower interest rates. A form of financial guarantee insurance. (See Financial guarantee insur-ance)

MUNICIPAL LIABILITY INSURANCE

Liability insurance for governments and government agencies. Coverages range from general liability to public officials er-rors and omissions to environment liability.

MUTUAL HOLDING COMPANY

An organizational structure that provides mutual companies with the organizational and capital raising advantages of stock insurers, while retaining the policyholder ownership of the mutual.

MUTUAL INSURANCE COMPANY

A company owned by its policyholders that returns part of its profits to the policyhold-ers as dividends. The insurer uses the rest as a surplus cushion in case of large and unexpected losses.

I.I.I. Insurance Handbook 109

Glossary

NAMED PERIL

Peril specifically mentioned as covered in an insurance policy.

NATIONAL FLOOD INSURANCE PROGRAM

Federal government-sponsored program under which flood insurance is sold to homeowners and businesses. (See Adverse selection; Flood insurance)

NEGLIGENCE

A failure to exercise the legally required degree of care of others, resulting in harm or damage.

*NET ANNUITY COST

A monetary amount equal to the present value of future periodic payments under an annuity contract, calculated on a net basis, without any specific provision for expense loading. Contrast with Gross annuity cost. (See Annuity cost)

NO-FAULT MEDICAL

A type of accident coverage in homeowners policies.

NO-PAY, NO-PLAY

The idea that people who don’t buy cover-age should not receive benefits. Prohibits uninsured drivers from collecting damages from insured drivers. In most states with this law, uninsured drivers may not sue for noneconomic damages such as pain and suffering. In other states, uninsured drivers are required to pay the equivalent of a large deductible ($10,000) before they can sue for property damages and another large deductible before they can sue for bodily harm.

NONADMITTED ASSETS

Assets that are not included on the balance sheet of an insurance company, includ-ing furniture, fixtures, past-due accounts receivable, and agents’ debt balances. (See Assets)

*NET PAYMENT COST COMPARISON INDEX

A cost comparison index used to compare life insurance policies that takes into ac-count the time value of money and that measures the cost of a policy over a 10- or 20-year period assuming the policy owner pays premiums over the entire period. Con-trast with Surrender cost comparison index.

NET PREMIUMS WRITTEN

See Premiums written.

NO-FAULT

Auto insurance coverage that pays for each driver’s own injuries, regardless of who caused the accident. No-fault varies from state to state. It also refers to an auto liabil-ity insurance system that restricts lawsuits to serious cases. Such policies are designed to promote faster reimbursement and to reduce litigation.

NONADMITTED INSURER

Insurers licensed in some states, but not others. States where an insurer is not licensed call that insurer nonadmitted. They sell coverage that is unavailable from licensed insurers within the state.

*NONCANCELLABLE AND GUARANTEED RENEWABLE POLICY

An individual health insurance policy, which stipulates that, until the insured reaches a specified age (usually age 65), the insurer will not cancel the coverage, in-crease the premiums, or change the policy provisions as long as the premiums are paid when due. Also known as noncancellable policy. Contrast with Guaranteed renewable policy.

*NONFORFEITURE OPTIONS

The various ways in which a contract owner may apply the cash surrender value

110 I.I.I. Insurance Handbook

of an insurance or an annuity contract if the contract lapses. In the United States, the typical nonforfeiture options for life insurance are the cash payment option, the extended term insurance option and the re-duced paid-up insurance option. (See Cash payment option; Cash surrender value; Extended term insurance option; Reduced paid-up insurance option)

NONFORFEITURE VALUES

The benefits, as printed in a life insurance policy, that the insurance guarantees to the insured if the insured stops paying premi-ums.

NOTICE OF LOSS

A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provi-sions defining a policyholder’s responsibili-ties after a loss.

NUCLEAR INSURANCE

Covers operators of nuclear reactors and other facilities for liability and property damage in the case of a nuclear accident and involves both private insurers and the federal government.

NURSING HOME INSURANCE

A form of long-term care policy that covers a policyholder’s stay in a nursing facility.

OCCUPATIONAL DISEASE

Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers compensation policies. (See Work-ers compensation)

OCCURRENCE POLICY

Insurance that pays claims arising out of incidents that occur during the policy term,

Glossary

even if they are filed many years later. (See Claims made policy)

OCEAN MARINE INSURANCE

Coverage of all types of vessels and water-craft, for property damage to the vessel and cargo, including such risks as piracy and the jettisoning of cargo to save other prop-erty. Coverage for marine-related liabilities. War is excluded from basic policies, but can be bought back.

OPEN COMPETITION STATES

States where insurance companies can set new rates without prior approval, although the state’s commissioner can disallow them if they are not reasonable and adequate or are discriminatory.

OPERATING EXPENSES

The cost of maintaining a business’s prop-erty, includes insurance, property taxes, utilities and rent, but excludes income tax, depreciation and other financing expenses.

OPTIONS

Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.

ORDINANCE OR LAW COVERAGE

Endorsement to a property policy, includ-ing homeowners, that pays for the extra expense of rebuilding to comply with ordinances or laws, often building codes, that did not exist when the building was originally built. For example, a building severely damaged in a hurricane may have to be elevated above the flood line when it is rebuilt. This endorsement would cover part of the additional cost.

ORDINARY LIFE INSURANCE

A life insurance policy that remains in force for the policyholder’s lifetime.

I.I.I. Insurance Handbook 111

Glossary

ORIGINAL EQUIPMENT MANUFACTURER PARTS/OEM

Sheet metal auto parts made by the manu-facturer of the vehicle. (See Generic auto parts)

PAY-AT-THE-PUMP

A system proposed in the 1990s in which auto insurance premiums would be paid to state governments through a per-gallon surcharge on gasoline.

OVER-THE-COUNTER/OTC

Security that is not listed or traded on an exchange such as the New York Stock Exchange. Business in over-the-counter se-curities is conducted through dealers using electronic networks.

PACKAGE POLICY

A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.

*PAID-UP ADDITIONAL INSURANCE OPTION

An option, available to the owners of participating life insurance policies, that allows the policy owner to use policy dividends to purchase additional insurance on the insured’s life; the paid-up additional insurance is issued on the same plan as the basic policy and in whatever face amount the dividend can provide at the insured’s attained age. (See Dividend; Participating policy; Policy dividend options)

*PAID-UP POLICY

An insurance policy that requires no fur-ther premium payments but continues to provide coverage.

*PARTIAL DISABILITY

See Residual disability.

*PARTICIPATING POLICY

A type of insurance policy that allows policy owners to receive policy dividends. Also known as par policy. (See Dividend)

PAY-AS-YOU-DRIVE (PAYD)

An auto insurance product whose pricing takes into account the number of miles driven by the policyholder.

*PAYOUT OPTIONS

The methods available to an annuity contract owner for the distribution of the annuity’s accumulated value. (1) The lump sum distribution method allows the contract owner to receive the balance of his account in a single payment. (2) The fixed period option provides that the annuity’s accumulated value will be paid out over

a specified period of time. (3) The fixed-amount option provides that the annuity’s accumulated value will be paid out in a pre-selected payment amount until the ac-cumulated value is exhausted. (4) A life an-nuity option provides that periodic income payments will be tied in some manner to the life expectancy of a named individual. (See Life annuity)

PENSION BENEFIT GUARANTY CORPORATION

An independent federal government agency that administers the Pension Plan Termi-nation Insurance program to ensure that vested benefits of employees whose pen-sion plans are being terminated are paid when they come due. Only defined benefit plans are covered. Benefits are paid up to certain limits.

PENSIONS

Programs to provide employees with retire-ment income after they meet minimum age and service requirements. Life insur-ers hold some of these funds. Since the

112 I.I.I. Insurance Handbook

1970s responsibility for funding retirement has increasingly shifted from employers (defined benefit plans that promise workers a specific retirement income) to employ-ees (defined contribution plans financed by employees that may or may not be matched by employer contributions). (See Defined benefit plan; Defined contribution plan)

*PER CAPITA BENEFICIARY DESIGNATION

A type of life insurance policy beneficiary designation in which the life insurance benefits are divided equally among the designated beneficiaries who survive the insured. For example, if the policy specifies two beneficiaries, but only one is surviving at the time of the insured’s death, then the remaining beneficiary receives the entire policy benefit. Contrast with Per stirpes beneficiary designation.

*PER STIRPES BENEFICIARY DESIGNATION

A type of life insurance policy beneficiary designation in which the life insurance benefits are divided among a class of beneficiaries; for example, children of the insured. The living members of the class and the descendants of any deceased members of the class share in the benefits equally. Contrast with Per capita beneficiary designation.

PERIL

A specific risk or cause of loss covered by an insurance policy, such as a fire, wind-storm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of loss except those specifically excluded.

Glossary

*PERIOD CERTAIN

The stated period over which an insurer makes periodic benefit payments under an annuity certain. (See Annuity certain)

PERSONAL ARTICLES FLOATER

A policy or an addition to a policy used to cover personal valuables, like jewelry or furs.

PERSONAL INJURY PROTECTION COVERAGE/PIP

Portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholder’s car.

PERSONAL LINES

Property/casualty insurance products that are designed for and bought by individu-als, including homeowners and automobile policies. (See Commercial lines)

POINT-OF-SERVICE PLAN

Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.

POLICY

A written contract for insurance between an insurance company and a policyholder stating details of coverage.

*POLICY DIVIDEND OPTIONS

Ways in which the owner of a participat-ing insurance policy may receive policy dividends. (See Additional term insurance option; Cash dividend option; Dividend accumulations option; Paid-up additional insurance option; Premium reduction op-tion)

POLICYHOLDERS’ SURPLUS

The amount of money remaining after an insurer’s liabilities are subtracted from its assets. It acts as a financial cushion above

I.I.I. Insurance Handbook 113

Glossary

and beyond reserves, protecting policy-holders against an unexpected or cata-strophic situation.

POLITICAL RISK INSURANCE

Coverage for businesses operating abroad against loss due to political upheaval such as war, revolution, or confiscation of property.

POLLUTION INSURANCE

Policies that cover property loss and liabil-ity arising from pollution-related damages, for sites that have been inspected and found uncontaminated. It is usually writ-ten on a claims-made basis so policies pay only claims presented during the term of the policy or within a specified time frame after the policy expires. (See Claims made policy)

POOL

See Insurance pool.

cantly lower than average likelihood of loss within the context of the insurer’s under-writing practices. Contrast with Declined risk class, Standard risk class and Substan-dard risk class.

PREMISES

The particular location of the property or a portion of it as designated in an insurance policy.

PREMIUM

The price of an insurance policy, typically charged annually or semiannually. (See Di-rect premiums; Earned premium; Unearned premium)

*PREMIUM REDUCTION OPTION

An option, available to the owners of participating insurance policies, that al-lows the insurer to apply policy dividends toward the payment of renewal premiums. (See Dividend; Policy dividend options)

*PRE-EXISTING CONDITION

According to most group health insur-ance policies, a condition for which an individual received medical care during the three months immediately prior to the effective date of her coverage. (2) Accord-ing to most individual health insurance policies, an injury that occurred or a sick-ness that first appeared or manifested itself within a specified period—usually two years—before the policy was issued and that was not disclosed on the application for insurance.

PREFERRED PROVIDER ORGANIZATION

Network of medical providers which charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.

*PREFERRED RISK CLASS

In insurance underwriting, the group of proposed insureds who represent a signifi-

PREMIUM TAX

A state tax on premiums paid by its residents and businesses and collected by insurers.

PREMIUMS IN FORCE

The sum of the face amounts, plus divi-dend additions, of life insurance policies outstanding at a given time.

PREMIUMS WRITTEN

The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net premiums written are premi-ums written after reinsurance transactions.

*PRIMARY BENEFICIARY

The party designated to receive the pro-ceeds of a life insurance policy following the death of the insured. Also known as first beneficiary. (See Contingent benefi-ciary)

114 I.I.I. Insurance Handbook

Glossary

PRIMARY COMPANY PROOF OF LOSS

In a reinsurance transaction, the insurance company that is reinsured.

Documents showing the insurance com-pany that a loss occurred.

PRIMARY MARKET

Market for new issue securities where the proceeds go directly to the issuer.

PRIME RATE

Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.

PRIOR APPROVAL STATES

States where insurance companies must file proposed rate changes with state regulators, and gain approval before they can go into effect.

PRIVATE MORTGAGE INSURANCE

See Mortgage guarantee insurance.

PRIVATE PLACEMENT

Securities that are not registered with the Securities and Exchange Commission and are sold directly to investors.

PROPERTY/CASUALTY INSURANCE

Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property. Property/casualty insurance, which in-cludes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Outside the United States, property/casu-alty insurance is referred to as nonlife or general insurance.

PROPERTY/CASUALTY INSURANCE CYCLE

Industry business cycle with recurrent periods of hard and soft market condi-tions. In the 1950s and 1960s, cycles were regular with three year periods each of hard and soft market conditions in almost all lines of property/casualty insurance. Since then they have been less regular and less frequent.

PRODUCT LIABILITY

A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform federal laws guide manufac-turer’s liability, but under strict liability, the injured party can hold the manufacturer responsible for damages without the need to prove negligence or fault.

PROPOSITION 103

A November 1988 California ballot initiative that called for a statewide auto insurance rate rollback and for rates to be based more on driving records and less on geographical location. The initiative changed many aspects of the state’s insur-ance system and was the subject of lawsuits for more than a decade.

PRODUCT LIABILITY INSURANCE

Protects manufacturers’ and distributors’ exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product.

PROFESSIONAL LIABILITY INSURANCE

Covers professionals for negligence and er-rors or omissions that injure their clients.

PURCHASING GROUP

An entity that offers insurance to groups of similar businesses with similar exposures to risk.

PURE ENDOWMENT

A life insurance contract that pays a periodic income benefit for the life of the owner of the annuity. The payment can

I.I.I. Insurance Handbook 115

Glossary

be monthly, quarterly, semiannually or annually.

PURE LIFE ANNUITY

A form of annuity that ends payments when the annuitant dies. Payments may be fixed or variable.

QUALIFIED ANNUITY

A form of annuity purchased with pretax dollars as part of a retirement plan that benefits from special tax treatment, such as a 401(k) plan.

RATE

The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.

RATE REGULATION

The process by which states monitor insur-ance companies’ rate changes, done either through prior approval or open competi-tion models. (See Open competition states; Prior approval states)

*RATED POLICY

An insurance policy that is classified as having a greater-than-average likelihood of loss, usually issued with special exclusions, a premium rate that is higher than the rate for a standard policy, a reduced face amount, or any combination of these.

RATING AGENCIES

There are several major credit agencies that determine insurers’ financial strength and viability to meet claims obligations. They include A.M. Best Co.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considered

include company earnings, capital adequa-cy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experi-ence.

RATING BUREAU

The insurance business is based on the spread of risk. The more widely risk is spread, the more accurately loss can be estimated. An insurance company can more accurately estimate the probability of loss on 100,000 homes than on ten. Years ago, insurers were required to use standard-ized forms and rates developed by rating agencies. Today, large insurers use their own statistical loss data to develop rates. But small insurers, or insurers focusing on special lines of business, with insufficiently broad loss data to make them actuarially re-liable depend on pooled industry data col-lected by such organizations as ISO, which provides information to help develop rates such as estimates of future losses and loss adjustment expenses like legal defense costs.

REAL ESTATE INVESTMENTS

Investments generally owned by life insur-ers that include commercial mortgage loans and real property.

RECEIVABLES

Amounts owed to a business for goods or services provided.

REDLINING

Literally means to draw a red line on a map around areas to receive special treatment. Refusal to issue insurance based solely on where applicants live is illegal in all states. Denial of insurance must be risk-based.

*REDUCED PAID-UP INSURANCE OPTION

One of several nonforfeiture options in-cluded in life insurance policies that allows

116 I.I.I. Insurance Handbook

the owner of a policy with cash values to discontinue premium payments and to use the policy’s net cash value to purchase paid-up insurance of the same plan as the original policy. (See Nonforfeiture options)

*REGISTERED PRINCIPAL

An officer or manager of a National Associ-ation of Securities Dealers (NASD) member, who is involved in the day-to-day opera-tion of the securities business, has qualified as a registered representative, and has an NASD Series 24 or 26 registration.

*REGISTERED REPRESENTATIVE

A sales representative or other person who has registered with the National Associa-tion of Securities Dealers (NASD), disclosed the required background information, and passed one or more NASD examination. A registered representative engages in the securities business on behalf of a NASD member by soliciting the sale of securities or training securities salespeople.

*REINSTATEMENT

The process by which an insurer puts back into force an insurance policy that has either been terminated for nonpayment of premiums or continued as extended term or reduced paid-up coverage.

REINSURANCE

Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsur-ance effectively increases an insurer’s capi-tal and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers don’t pay poli-cyholder claims. Instead, they reimburse insurers for claims paid. (See Treaty reinsur-ance; Facultative reinsurance)

Glossary

RELATION OF EARNINGS TO INSURANCE CLAUSE

A clause included in some individual dis-ability policies that limits the amount of benefits that an insurer will pay when the total amount of disability benefits from all insurers exceeds the individual’s usual earnings.

*RENEWABLE TERM INSURANCE POLICY

A term life insurance policy that gives the policy owner the option to continue the coverage at the end of the specified term without presenting evidence of insurability, although typically at a higher premium based on the insured’s attained age.

RENTERS INSURANCE

A form of insurance that covers a policy-holder’s belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage,

if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Posses-sions can be covered for their replacement cost or for their actual cash value, which includes depreciation.

REPLACEMENT COST

Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

REPURCHASE AGREEMENT/‘REPO’

Agreement between a buyer and seller where the seller agrees to repurchase the securities at an agreed upon time and

I.I.I. Insurance Handbook 117

Glossary

price. Repurchase agreements involving U.S. government securities are utilized by the Federal Reserve to control the money supply.

RETURN ON EQUITY

Net income divided by total equity. Mea-sures profitability by showing how effi-ciently invested capital is being used.

RESERVES

A company’s best estimate of what it will pay for claims.

*RESIDUAL DISABILITY

In disability income insurance, a condition in which the insured is not totally disabled, but is still unable to function as before the sickness or injury, and therefore suffers a reduction in income of at least the percent-age—typically 20 percent to 25 percent— specified in the disability income plan. Also known as partial disability.

*RESIDUAL DISABILITY INSURANCE

See Income protection insurance.

RESIDUAL MARKET

Facilities, such as assigned risk plans and FAIR Plans, that exist to provide coverage for those who cannot get it in the regular market. Insurers doing business in a given state generally must participate in these pools. For this reason the residual market is also known as the shared market.

RETENTION

The amount of risk retained by an insur-ance company that is not reinsured.

RETROCESSION

The reinsurance bought by reinsurers to protect their financial stability.

RETROSPECTIVE RATING

A method of permitting the final premium for a risk to be adjusted, subject to an agreed upon maximum and minimum limit based on actual loss experience. It is available to large commercial insurance buyers.

*REVOCABLE BENEFICIARY

A life insurance policy beneficiary whose right to the policy’s proceeds can be can-celled or reduced by the policy owner at any time before the insured’s death. Contrast with Irrevocable beneficiary.

RIDER

An attachment to an insurance policy that alters the policy’s coverage or terms.

RISK

The chance of loss or the person or entity that is insured.

RISK MANAGEMENT

Management of the varied risks to which a business firm or association might be sub-ject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety mea-sures, buying insurance, and self-insurance.

RISK-RETENTION GROUPS

Businesses that band together to self-insure and form an organization, which is char-tered and licensed as an insurer in at least one state, to handle liability insurance.

RISK-BASED CAPITAL

The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.

*ROLLOVER

A direct transfer of retirement funds from one qualified plan to another plan of the

118 I.I.I. Insurance Handbook

same type or to an individual retirement arrangement (IRA) that does not pass through the hands of the owner and thus does not incur any tax liability for the owner. Also known as direct rollover and direct transfer.

SALVAGE

Damaged property an insurer takes over to reduce its loss after paying a claim. Insur-ers receive salvage rights over property on which they have paid claims, such as badly damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.

SCHEDULE

A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.

Glossary

the Internal Revenue Service annually ad-just these limits for cost-of-living increases.

SECURITIES AND EXCHANGE COMMISSION/SEC

The organization that oversees publicly held insurance companies. Those compa-nies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K) and a quarterly finan-cial statement (or 10-Q). Companies must also disclose any material events and other information about their stock.

SECURITIES OUTSTANDING

Stock held by shareholders.

SECURITIZATION OF INSURANCE RISK

Using the capital markets to expand and diversify the assumption of insurance risk. The issuance of bonds or notes to third-party investors directly or indirectly by an insurance or reinsurance company or a pooling entity as a means of raising money to cover risks. (See Catastrophe bonds)

SECOND-TO-DIE LIFE INSURANCE

See Survivorship Life insurance.

SECONDARY MARKET

Market for previously issued and outstand-ing securities.

*SECTION 1035 EXCHANGE

In the United States, a taxfree replacement of an insurance policy for another insur-ance contract covering the same person that is performed in accordance with the conditions of Section 1035 of the Internal Revenue Code.

SECTION 415

A section of the Internal Revenue Code that provides for dollar limitations on benefits and contributions under qualified retire-ment plans. Section 415 also requires that

*SEGREGATED ACCOUNT

In Canada, an investment account that insurers maintain separately from a general account to help manage the funds placed in variable insurance products such as vari-able annuities. (See Separate account)

SELF-INSURANCE

The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deduct-ible and co-payments. Large firms often self-insure frequent, small losses such as damage to their fleet of vehicles or minor workplace injuries. However, to protect injured employees state laws set out re-quirements for the assumption of workers compensation programs. Self-insurance also refers to employers who assume all or

I.I.I. Insurance Handbook 119

Glossary

part of the responsibility for paying the health insurance claims of their employees. Firms that self insure for health claims are exempt from state insurance laws mandat-ing the illnesses that group health insurers must cover.

*SEPARATE ACCOUNT

In the United States, an investment ac-count maintained separately from an in-surer’s general account to help manage the funds placed in variable insurance products such as variable annuities. Contrast with General account. (See Segregated account)

*SETTLEMENT OPTIONS

Choices given to the owner or beneficiary of a life insurance policy regarding the method by which the insurer will pay the policy’s proceeds when the policy owner does not receive the benefits in one single payment. Typically, the owner can elect (1) to leave the proceeds with the insurer and earn a specified interest rate, (2) to have the proceeds paid in a series of installments for a pre-selected period, (3) to have the proceeds paid in a pre-selected sum in a series of installments for as long as the proceeds last, or (4) to have the insurer tie payment of the proceeds to the life expec-tancy of a named individual through a life annuity. Also known as optional modes of settlement. (See Life annuity)

SEVERITY

Size of a loss. One of the criteria used in calculating premiums rates.

SEWER BACKUP COVERAGE

An optional part of homeowners insurance that covers sewers.

SHARED MARKET

See Residual market.

*SHORT-TERM DISABILITY INCOME INSURANCE

A type of disability income coverage that provides disability income benefits for a maximum benefit period of from one to five years. Contrast with Long-term disabil-ity income insurance.

*SINGLE PREMIUM POLICIES

A type of life insurance or annuity contract that is purchased by the payment of one lump sum. (1) A single-premium deferred annuity (SPDA) is an annuity contract purchased with a single premium payment whose periodic income payments gener-ally do not begin until several years in the future. (2) A single premium immediate an-nuity (SPIA) contract is an annuity contract that is purchased with a single premium payment and that will begin making peri-odic income payments one annuity period after the contract’s issue date.

SOFT MARKET

An environment where insurance is plenti-ful and sold at a lower cost, also known as a buyers’ market. (See Property/casualty insurance cycle)

SOLVENCY

Insurance companies’ ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insur-ance company investment and corporate activities, financial ratio tests and financial data disclosure.

SOLVENCY II

A collection of regulatory requirements for insurance firms that operate in the European Union, scheduled to take effect in 2012.

120 I.I.I. Insurance Handbook

*SPECIFIED DISEASE COVERAGE

A type of health insurance coverage that provides benefits for the diagnosis and treatment of a specifically named disease or diseases, such as cancer. Also known as dread disease coverage. Contrast with Criti-cal illness (CI) insurance.

SPENDTHRIFT TRUST CLAUSE

Life insurance provision that protects poli-cy payouts from the beneficiary’s creditors.

*SPLIT-DOLLAR LIFE INSURANCE PLAN

An agreement under which a business pro-vides individual life insurance policies for certain employees, who share in paying the cost of the policies.

SPREAD OF RISK

The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood. (See Adverse selection)

STACKING

Practice that increases the money avail-able to pay auto liability claims. In states where this practice is permitted by law, courts may allow policyholders who have several cars insured under a single policy, or multiple vehicles insured under differ-ent policies, to add up the limit of liability available for each vehicle.

*STANDARD RISK CLASS

In insurance underwriting, the group of proposed insureds who represent average risk within the context of the insurer’s

Glossary

underwriting practices and therefore pay average premiums in relation to others of similar insurability. Contrast with Declined risk class, Preferred risk class and Substan-dard risk class.

STATUTORY ACCOUNTING PRINCIPLES/SAP

More conservative standards than under GAAP accounting rules, they are imposed by state laws that emphasize the present solvency of insurance companies. SAP helps ensure that the company will have sufficient funds readily available to meet all antici-pated insurance obligations by recognizing liabilities earlier or at a higher value than GAAP and assets later or at a lower value. For example, SAP requires that selling expenses be recorded immediately rather than amor-tized over the life of the policy. (See Admitted assets; GAAP accounting)

STOCK INSURANCE COMPANY

An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.

*STRAIGHT LIFE ANNUITY

A type of life annuity contract that pro-vides periodic income payments for as long as the annuitant lives but provides no ben-efit payments after the annuitant’s death. (See Life annuity)

STRUCTURED SETTLEMENT

Legal agreement to pay a designated person, usually someone who has been injured,

a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment. (See Annuity)

SUBROGATION

The legal process by which an insurance company, after paying a loss, seeks to re-

I.I.I. Insurance Handbook 121

Glossary

cover the amount of the loss from another party who is legally liable for it.

*SUBSTANDARD PREMIUM RATES

The premium rates charged insureds who are classified as substandard risks. Also known as special class rates.

*SUBSTANDARD RISK CLASS

In insurance underwriting, the group of proposed insureds who represent a signifi-cantly greater-than-average likelihood of loss within the context of the insurer’s un-derwriting practices. Also known as special class risk. Contrast with Declined risk class, Preferred risk class and Standard risk class.

*SUICIDE EXCLUSION PROVISION

A life insurance policy provision stating that policy proceeds will not be paid if the insured dies as the result of suicide as defined within the policy within a specified period following the date of policy issue.

SUPERFUND

A federal law enacted in 1980 to initiate cleanup of the nation’s abandoned hazard-ous waste dump sites and to respond to accidents that release hazardous substances into the environment. The law is officially called the Comprehensive Environmental Response, Compensation, and Liability Act.

*SUPPLEMENTAL COVERAGE

An amount of coverage that adds to the amount of coverage specified in a basic insurance policy.

SURETY BOND

A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a sec-ond party, the owner, creditor or “obligee,” for a third party’s debts, default or nonper-formance. Contractors are often required to purchase surety bonds if they are working

on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond “penalty” if the contractor fails to perform.

SURPLUS

The remainder after an insurer’s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims. (See Capital; Risk-based capital)

SURPLUS LINES

Property/casualty insurance coverage that isn’t available from insurers licensed in the state, called admitted companies, and must be purchased from a nonadmitted car-rier. Examples include risks of an unusual nature that require greater flexibility in policy terms and conditions than exist in standard forms or where the highest rates allowed by state regulators are considered inadequate by admitted companies. Laws governing surplus lines vary by state.

SURRENDER CHARGE

A charge for withdrawals from an annu-ity contract before a designated surrender charge period, usually from five to seven years.

*SURRENDER COST COMPARISON INDEX

A cost comparison index, used to com-pare insurance policies, which takes into account the time value of money and measures the cost of a policy over a 10- or 20-year period assuming the policy owner surrenders the policy for its cash value at the end of the period. Contrast with Net payment cost comparison index.

SURVIVORSHIP LIFE INSURANCE

A form of insurance that covers more than one person and pays a benefit after all of the insureds die. It can be used to help pay estate taxes after the deaths of a husband

122 I.I.I. Insurance Handbook

and wife or as a form of business continu-ation insurance. Also known as second-to-die life insurance.

SWAPS

The simultaneous buying, selling or ex-change of one security for another among investors to change maturities in a bond portfolio, for example, or because invest-ment goals have changed.

*TAX-DEFERRED BASIS

Accumulation of investment income on which income taxes are not payable until money is withdrawn from the investment vehicle.

Glossary

The location of the insured may have a considerable impact on the cost of losses. The chance of an accident or theft is much higher in an urban area than in a rural one, for example.

TERRORISM INSURANCE

Included as a part of the package in stan-dard commercial insurance policies before September 11 virtually free of charge. Ter-rorism coverage is now generally offered separately at a price that more adequately reflects the risk. The Terrorism Risk Insur-ance Act (TRIA) was created by Congress in 2002, and renewed for two years in Decem-ber 2005, to provide a temporary backstop for incurred losses resulting from certain acts of terrorism.

*TAX SHELTERED ANNUITY (TSA)

In the United States, a retirement annuity sold only to organizations offering quali-fied retirement plans under section 403(b) of the U.S. Internal Revenue Code. (See 403(b) plan)

*TEN-DAY FREE LOOK PROVISION

See Free-look period.

TERM CERTAIN ANNUITY

A form of annuity that pays out over a fixed period rather than when the annui-tant dies.

TERM INSURANCE

A form of life insurance that covers the in-sured person for a certain period of time, the “term” that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be one, five, 10 or even 20 years. Term life policies are renewable but premiums increase with age.

TERRITORIAL RATING

A method of classifying risks by geographic location to set a fair price for coverage.

THIRD-PARTY ADMINISTRATOR

Outside group that performs clerical func-tions for an insurance company.

THIRD-PARTY COVERAGE

Liability coverage purchased by the poli-cyholder as a protection against possible lawsuits filed by a third party. The insured and the insurer are the first and second parties to the insurance contract. (See First-party coverage)

TIME DEPOSIT

Funds that are held in a savings account for a predetermined period of time at a set interest rate. Banks can refuse to allow withdrawals from these accounts until the period has expired or assess a penalty for early withdrawals.

*TIME LIMIT ON CERTAIN DEFENSES PROVISION

An individual health insurance policy provision that limits the time during which the insurer may contest the validity of the contract on the ground of misrepresenta-tion in the application or may reduce or deny a claim on the ground it results from

I.I.I. Insurance Handbook 123

Glossary

a preexisting condition. (See Incontestabil-ity provision)

TITLE INSURANCE

Insurance that indemnifies the owner of real estate in the event that his or her clear ownership of property is challenged by the discovery of faults in the title.

TORT

A legal term denoting a wrongful act result-ing in injury or damage on which a civil court action, or legal proceeding, may be based.

TORT LAW

The body of law governing negligence, inten-tional interference, and other wrongful acts for which civil action can be brought, except for breach of contract, which is covered by contract law.

TORT REFORM

Refers to legislation designed to reduce liability costs through limits on various kinds of damages and through modifica-tion of liability rules.

*TOTAL DISABILITY

For disability insurance purposes, an insured’s disability that meets the require-ments of the definition of total disability included in the disability insurance policy or policy rider and that qualifies for pay-ment of the specified disability benefits. When a disability begins, total disability is usually the complete and continuous inability of an insured to perform the essential duties of his regular occupation. After a disability has existed for a specified period, total disability usually exists only if the insured is prevented from working at any occupation for which he is reasonably fitted by education, training or experience. (See Disability; Residual disability)

TOTAL LOSS

The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.

TRANSPARENCY

A term used to explain the way information on financial matters, such as financial re-ports and actions of companies or markets, are communicated so that they are easily understood and frank.

TRAVEL INSURANCE

Insurance to cover problems associated with traveling, generally including trip cancellation due to illness, lost luggage and other incidents.

TREASURY SECURITIES

Interest-bearing obligations of the U.S. government issued by the Treasury as a means of borrowing money to meet gov-ernment expenditures not covered by tax revenues. Marketable Treasury securities fall into three categories—bills, notes and bonds. Marketable Treasury obligations are currently issued in book entry form only; that is, the purchaser receives a statement, rather than an engraved certificate.

TREATY REINSURANCE

A standing agreement between insurers and reinsurers. Under a treaty each party automatically accepts specific percentages of the insurer’s business.

*TWISTING

An illegal insurance sales practice, in which a sales agent misrepresents the features of a contract in order to induce the contract owner to replace his current contract, often to the disadvantage of the contract owner. (See Misrepresentation)

124 I.I.I. Insurance Handbook

UMBRELLA POLICY

Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of under-lying policies.

Glossary

underwriting loss. Underwriting losses are typically offset by investment income.

UNEARNED PREMIUM

The portion of a premium already received by the insurer under which protection has not yet been provided. The entire premium is not earned until the policy period ex-pires, even though premiums are typically paid in advance.

UNBUNDLED CONTRACTS

A form of annuity contract that gives purchasers the freedom to choose among certain optional features in their contract.

UNCLAIMED LIFE INSURANCE BENEFITS

Life insurance benefits that are unclaimed and unpaid because the beneficiaries aren’t aware that the policies exist or can’t locate the policies because they don’t know which insurance company wrote them. If an insurance company knows that an insured died and cannot find the beneficiary, the money is transferred to the state where the insured bought the policy.

UNDERINSURANCE

The result of the policyholder’s failure to buy sufficient insurance. An underinsured policyholder may only receive part of the cost of replacing or repairing damaged items covered in the policy.

UNINSURABLE RISK

Risks that do not meet the criteria of an insurable risk. (See Insurable risk)

UNINSURED MOTORISTS COVERAGE

Portion of an auto insurance policy that protects a policyholder from uninsured and hit-and-run drivers.

UNIVERSAL LIFE INSURANCE

A flexible premium policy that combines protection against premature death with a type of savings vehicle, known as a cash value account, that typically earns a money market rate of interest. Death benefits can be changed during the life of the policy within limits, generally subject to a medi-cal examination. Once funds accumulate in the cash value account, the premium can be paid at any time but the policy will lapse if there isn’t enough money to cover annual mortality charges and administra-tive costs.

UNDERWRITING

Examining, accepting, or rejecting insur-ance risks and classifying the ones that are accepted, in order to charge appropriate premiums.

UNDERWRITING INCOME

The insurer’s profit on the insurance sale after all expenses and losses have been paid. When premiums aren’t sufficient to cover claims and expenses, the result is an

UTILIZATION REVIEW

See Medical utilization review.

VALUED POLICY

A policy under which the insurer pays a specified amount of money to or on behalf of the insured upon the occurrence of a defined loss. The money amount is not related to the extent of the loss. Life insur-ance policies are an example.

I.I.I. Insurance Handbook 125

Glossary

VANDALISM

The malicious and often random de-struction or spoilage of another person’s property.

VARIABLE ANNUITY

An annuity whose contract value or income payments vary according to the performance of the stocks, bonds and other investments selected by the contract owner.

VARIABLE LIFE INSURANCE

A policy that combines protection against premature death with a savings account that can be invested in stocks, bonds and money market mutual funds at the policy-holder’s discretion.

*VARIABLE PREMIUM LIFE INSURANCE POLICY

See Indeterminate premium life insurance policy.

VIATICAL SETTLEMENT COMPANIES

Insurance firms that buy life insurance poli-cies at a steep discount from policyholders who are often terminally ill and need the payment for medications or treatments. The companies provide early payouts to the policyholder, assume the premium payments, and collect the face value of the policy upon the policyholder’s death.

*VARIABLE UNIVERSAL LIFE (VUL) INSURANCE

A form of permanent life insurance that combines the premium and death benefit flexibility of universal life insurance with the investment flexibility and risk of variable life insurance. With this type of policy, the death benefit and the cash value fluctuate according to the contract’s investment performance. Also known as universal life II.

VOID

A policy contract that for some reason spec-ified in the policy becomes free of all legal effect. One example under which a policy could be voided is when information a policyholder provided is proven untrue.

VOLATILITY

A measure of the degree of fluctuation in a stock’s price. Volatility is exemplified by large, frequent price swings up and down.

VOLCANO COVERAGE

Most homeowners policies cover damage from a volcanic eruption.

VOLUME

Number of shares a stock trades either per day or per week.

*WAITING PERIOD

For a health insurance policy, the period of time that must pass from the date of policy issue before benefits are payable to an insured. Also known as elimination period and probationary period.

WAIVER

The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as disablement, which allow coverage to remain in force without payment of premiums.

*WAIVER OF PREMIUM FOR DISABILITY (WP) BENEFIT

A supplementary life insurance policy or annuity contract benefit under which the insurer promises to give up its right to col-lect premiums that become due while the insured is disabled according to the policy or rider’s definition of disability.

126 I.I.I. Insurance Handbook

WARRANTY INSURANCE

Coverage that compensates consumers for the cost of repairing or replacing defective products past the normal warranty period provided by manufacturers.

WAR RISK

Special coverage on cargo in overseas ships against the risk of being confiscated by a government in wartime. It is excluded from standard ocean marine insurance and can be purchased separately. It often excludes cargo awaiting shipment on a wharf or on ships after 15 days of arrival in port.

WATER-DAMAGE INSURANCE COVERAGE

Protection provided in most homeown-ers insurance policies against sudden and accidental water damage, from burst pipes for example. Does not cover damage from problems resulting from a lack of proper maintenance such as dripping air condi-tioners. Water damage from floods is cov-ered under separate flood insurance policies issued by the federal government.

WEATHER DERIVATIVE

An insurance or securities product used as a hedge by energy-related businesses and others whose sales tend to fluctuate depending on the weather.

WEATHER INSURANCE

A type of business income insurance that compensates for financial losses caused by adverse weather conditions, such as con-stant rain on the day scheduled for a major outdoor concert.

WHOLE LIFE INSURANCE

The oldest kind of cash value life insurance that combines protection against prema-ture death with a savings account. Premi-ums are fixed and guaranteed and remain level throughout the policy’s lifetime.

Glossary

WORKERS COMPENSATION

Insurance that pays for medical care and physical rehabilitation of injured work-ers and helps to replace lost wages while they are unable to work. State laws, which vary significantly, govern the amount of benefits paid and other compensation provisions.

WRAP-UP INSURANCE

Broad policy coordinated to cover liability exposures for a large group of businesses that have something in common. Might be used to insure all businesses working on a large construction project, such as an apart-ment complex.

WRITE

To insure, underwrite, or accept an applica-tion for insurance.

WRITTEN PREMIUMS

See Premiums written.

XXX Regulation

The National Association of Insurance Commissioner’s current model valuation law for life insurance policies, adopted in March 1999. The law tells insurance companies how much they should hold as

a reserve for each term life insurance policy. The model has been adopted by most of the states.

*YEARLY RENEWABLE TERM (YRT) INSURANCE

One-year term life insurance that is renew-able at the end of the policy term. Also known as annually renewable term (ART) insurance. (See Term life insurance)

I.I.I. Insurance Handbook 127

Glossary

Property/Casualty

Insurance Industry

Organizations

AMERICAN INSURANCE ASSOCIATION (AIA) – NATIONAL OFFICE

2101 L Street, NW, Suite 400 Washington, DC 20037 Tel: 202-828-7100 Fax: 202-293-1219

Web: www.aiadc.org

Trade and service organization for property/ casualty insurance companies. Provides a forum for the discussion of problems as well as safety, promotional and legislative services.

AMERICAN INSURANCE ASSOCIATION (AIA) – MID-ATLANTIC REGION

2101 L Street, NW, Suite 400 Washington, DC 20037 Tel: 202-828-7139 Fax: 202-293-1219

Web: www.aiadc.org

AMERICAN INSURANCE ASSOCIATION (AIA) – MIDWEST REGION

150 North Wacker Drive, Suite 2525 Chicago, IL 60606 Tel: 312-782-7720

Fax: 312-782-7718

Web: www.aiadc.org

AMERICAN INSURANCE ASSOCIATION (AIA) – NORTHEAST REGION (ALBANY)

95 Columbia Street

Albany, NY 12210

Tel: 518-462-1695

Fax: 518-465-6023

Web: www.aiadc.org

AMERICAN INSURANCE ASSOCIATION (AIA) – NORTHEAST REGION (BOSTON)

1 Walnut Street

Boston, MA 02108

Tel: 617-305-4155

Fax: 617-305-4154

Web: www.aiadc.org

128 I.I.I. Insurance Handbook

AMERICAN INSURANCE ASSOCIATION (AIA) – SOUTHEAST REGION

5605 Glenridge Drive, Suite 845 Atlanta, GA 30342 Tel: 404-261-8834

Fax: 404-231-5780

Web: www.aiadc.org

AMERICAN INSURANCE ASSOCIATION (AIA) – SOUTHWEST REGION

500 West 13th Street

Austin, TX 78701

Tel: 512-322-3111

Fax: 512-322-3112

Web: www.aiadc.org

AMERICAN INSURANCE ASSOCIATION (AIA) – WESTERN REGION

915 L Street, Suite 1480

Sacramento, CA 95814

Tel: 916-442-7617

Fax: 916-422-8178

Web: www.aiadc.org

INDEPENDENT INSURANCE AGENTS

BROKERS OF AMERICA, INC.

127 S. Peyton Street Alexandria, VA 22314 Tel: 800-221-7917 Fax: 703-683-7556 Web: www.iiaba.org

Trade association of independent insurance agents and brokers.

INSTITUTE FOR BUSINESS

HOME SAFETY

4775 E. Fowler Avenue Tampa, FL 33617 Tel: 813-286-3400 Fax: 813-286-9960 Web: www.ibhs.org

An insurance industry-sponsored nonprofit organization dedicated to reducing losses,

Directories

deaths, injuries and property damage resulting from natural hazards.

INSURANCE INFORMATION INSTITUTE (I.I.I.)

110 William Street

New York, NY 10038

Tel: 212-346-5500

Fax: 212-732-1916

Web: www.iii.org

A primary source for information, analysis and reference on insurance subjects.

INSURANCE INFORMATION INSTITUTE (I.I.I.)

Florida Representative Lynne McChristian 4775 E. Fowler Avenue Tampa, Florida 33617

Tel: 813-480-6446

Fax: 813-915-3463

Web: www.InsuringFlorida.org

INSURANCE INFORMATION NETWORK OF CALIFORNIA (IINC)

3530 Wilshire Blvd., Suite 1610 Los Angeles, CA 90010 Tel: 213-624-4462

Web: www.iinc.org

INSURANCE RESEARCH COUNCIL (A DIVISION OF THE AMERICAN INSTITUTE FOR CPCU)

718 Providence Road, PO Box 3025 Malvern, PA 19355-0725 Tel: 610-644-2212

Fax: 610-640-5388

Web: www.ircweb.org

A division of the American Institute for CPCU. Provides the public and the insurance industry with timely research information relevant to public policy issues affecting risk and insurance.

I.I.I. Insurance Handbook 129

Directories

ISO

545 Washington Blvd. Jersey City, NJ 07310-1686 Tel: 800-888-4476 Fax: 201-748-1472

Web: www.iso.com

Provider of products and services that help measure, manage and reduce risk. Provides data, analytics and decision-support solutions to professionals in many fields, including insurance, finance, real estate, health services, government and human resources.

NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS

2901 Telestar Court, PO Box 12012 Falls Church, VA 22042-1205 Tel: 703-770-8100 Web: www.naifa.org

Professional association representing health and life insurance agents.

NATIONAL ASSOCIATION

OF MUTUAL INSURANCE

COMPANIES (NAMIC)

3601 Vincennes Rd., PO Box 68700 Indianapolis , IN 46268 Tel: 317-875-5250

Fax: 317-879-8408

Web: www.namic.org

Trade association of property/casualty mutual insurance companies.

NAMIC – WASHINGTON, DC OFFICE

122 C Street, NW, Suite 540 Washington, DC 20001 Tel: 202-628-1558 Fax: 202-628-1601

Web: www.namic.org

NATIONAL ASSOCIATION OF PROFESSIONAL INSURANCE AGENTS

400 N. Washington Street Alexandria, Virginia 22314-2353 Tel: 703-836-9340

Fax: 703-836-1279

Web: www.pianet.com

NATIONAL ASSOCIATION OF PROFESSIONAL SURPLUS LINES OFFICES, LTD.

200 N.E. 54th Street, Suite 200 Kansas City, MO 64118 Tel: 816-741-3910

Fax: 816-741-5409

Web: www.napslo.org

Professional association of wholesale brokers, excess and surplus lines companies, affiliates and supporting members.

NATIONAL INSURANCE CRIME BUREAU

1111 East Touhy, Suite 400 Des Plaines, IL 60018 Tel: 847-544-7085 Fax: 847-544-7101

Web: www.nicb.org

Not-for-profit organization dedicated to

combating crime and vehicle theft.

NCCI HOLDINGS, INC.

901 Peninsula Corporate Circle Boca Raton, FL 33487 Tel: 561-893-1000

Fax: 561-893-1500

Web: www.ncci.com

Develops and administers rating plans and systems for workers compensation insurance.

130 I.I.I. Insurance Handbook

NCCI, INC. – REGULATORY SERVICES DIVISION

111 River Street, Suite 1202 Hoboken, NJ 07030 Tel: 201-222-0500

Fax: 201-222-8880

Web: www.ncci.com

PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA (PCI)

2600 South River Road Des Plaines, IL 60018-3286 Tel: 847-297-7800 Fax: 847-297-5064

Web: www.pciaa.net

Serves as a voice on public policy issues and advocates positions that foster a competitive market place for property/ casualty insurers and insurance consumers.

PCI – CALIFORNIA (Western Region)

1415 L Street, Suite 670

Sacramento, CA 95814

Tel: 916-449-1370

Fax: 916-449-1378

Web: www.pciaa.net

PCI – COLORADO

1535 Grant Street, Suite 225 Denver, CO 80203 Tel: 303-830-6772

Fax: 303-830-6775

Web: www.pciaa.net

PCI – FLORIDA

215 S. Monroe Street, Suite 830 Tallahassee, FL 32302 Tel: 850-681-2615

Fax: 850-681-2614

Web: www.pciaa.net

PCI – GEORGIA

6636 Church Street, Suite 300 Douglasville, GA 30134 Tel: 770-949-1776

Fax: 770-949-0889

Web: www.pciaa.net

Directories

PCI – MASSACHUSETTS (New England Region)

One State Street, Suite 1500 Boston, MA 02109 Tel: 617-723-1976 Fax: 617-227-3590 Web: www.pciaa.net

PCI – NEW JERSEY (Northeastern Region)

28 West State Street, Suite 719 Trenton, NJ 08608 Tel: 609-396-9601

Fax: 609-396-9603

Web: www.pciaa.net

PCI – NEW YORK

90 South Swan Street

Albany, NY 12210

Tel: 518-443-2220

Fax: 518-443-2237

Web: www.pciaa.net

PCI – PENNSYLVANIA

116 Pine Street, Suite 205 Harrisburg, PA 17101 Tel: 717-232-0991 Fax: 717-232-0992

Web: www.pciaa.net

PCI – TEXAS (Southwestern Region)

700 Lavaca Street, Suite 1400 Austin, TX 78701 Tel: 512-334-6638

Fax: 847-759-4346

Web: www.pciaa.net

PCI – WASHINGTON (Northwestern Region)

1500 Water Street SW, Suite 2 Olympia, WA 98501 Tel: 360-915-6268

Fax: 360-357-5343

Web: www.pciaa.net

I.I.I. Insurance Handbook 131

Directories

PCI – WASHINGTON, DC

444 North Capitol Street NW, Suite 801 Washington, DC 20001 Tel: 202-639-0490

Fax: 202-639-0494

Web: www.pciaa.net

REINSURANCE ASSOCIATION OF AMERICA

1301 Pennsylvania Avenue, NW, Suite 900 Washington, DC 20004 Tel: 202-638-3690

Fax: 202-638-0936

Web: www.reinsurance.org

Trade association of property/casualty reinsurers; provides legislative services for members.

SURETY & FIDELITY ASSOCIATION OF AMERICA (SFAA)

1101 Connecticut Avenue, NW, Suite 800 Washington, DC 20036 Tel: 202-463-0600

Fax: 202-463-0606

Web: www.surety.org

Statistical, rating, development and advisory organization for surety companies.

SURETY INFORMATION OFFICE

1828 L Street, NW, Suite 720 Washington, DC 20036-5104 Tel: 202-686-7463 Fax: 202-686-3656

Web: www.sio.org

Statistical, rating, development and advisory organization for surety companies. Membership includes insurance companies licensed to write fidelity or surety insurance in one or more states and foreign affiliates.

Life/Health Insurance Industry Organizations

AMERICA’S HEALTH INSURANCE PLANS (AHIP)

601 Pennsylvania Avenue NW, South Building, Suite 500

Washington, DC 20004 Tel: 202-778-3200 Fax: 202-778-8486 Web: www.ahip.org

National trade association representing health insurance plans providing medical, long-term care, disability income, dental supplemental, stop-gap and reinsurance coverage.

AMERICAN COUNCIL OF LIFE INSURERS (ACLI)

101 Constitution Avenue NW, Suite 700 Washington, DC 20001-2133 Tel: 202-624-2000

Fax: 202-572-4745

Web: www.acli.com

Trade association responsible for the public affairs, government, legislative and research aspects of the life insurance business.

THE LIFE AND HEALTH INSURANCE FOUNDATION FOR EDUCATION

1655 North Fort Myer Drive, Suite 610 Arlington, VA 22209 Tel: 888-LIFE-777

Fax: 202-464-5011

Web: http://lifehappens.org Nonprofit organization dedicated to addressing the public’s growing need for information and education about life, health, disability and long-term care insurance.

132 I.I.I. Insurance Handbook

LIFE INSURANCE SETTLEMENT ASSOCIATION

1011 East Colonial Drive, Suite 500 Orlando, FL 32803 Tel: 407-894-3797

Fax: 407-897-1325

Web: www.thevoiceoftheindustry.org Promotes the development, integrity and reputation of the life settlement industry and a competitive market for the people it serves.

LIMRA INTERNATIONAL

300 Day Hill Road

Windsor, CT 06095

Tel: 860-285-7787

Fax: 860-298-9555

Web: www.limra.com

Worldwide association providing research, consulting and other services to insurance and financial services companies in more than 60 countries. LIMRA helps its member companies maximize their marketing effectiveness.

LOMA (LIFE OFFICE MANAGEMENT ASSOCIATION)

2300 Windy Ridge Parkway, Suite 600 Atlanta, GA 30339-8443 Tel: 770-951-1770

Fax: 770-984-0441

Web: www.loma.org

Worldwide association of insurance companies specializing in research and education, with a primary focus on home office management.

MIB, INC.

50 Braintree Hill Park, Suite 400 Braintree, MA 02184-8734 Tel: 781-751-6000

Web: www.mib.com/html/lost-life-insurance.html

Database of individual life insurance applications processed since 1995.

Directories

NATIONAL ALLIANCE OF

LIFE COMPANIES (NALC)

PO Box 50053

Sarasota, FL 34232

Tel: 941-379-6100

Fax: 941-379-6112

Web: www.nalc.net

NATIONAL ASSOCIATION OF HEALTH UNDERWRITERS

2000 North 14th Street, Suite 450 Arlington, VA 22201 Tel: 703-276-0220

Fax: 703-841-7797

Web: www.nahu.org

Professional association of people who sell and service disability income, and hospitalization and major medical health insurance companies.

NATIONAL ORGANIZATION OF LIFE AND HEALTH INSURANCE GUARANTY ASSOCIATIONS (NOLHGA)

13873 Park Center Road, Suite 329 Herndon, VA 20171 Tel: 703-481-5206

Fax: 703-481-5209

Web: www.nolhga.com

A voluntary association composed of the life and health insurance guaranty associations of all 50 states, the District of Columbia and Puerto Rico. When insolvency involves multiple states, NOLHGA assists its state guaranty association members in fulfilling their statutory obligations to policyholders.

I.I.I. Insurance Handbook 133

Directories

Financial Services Industry Organizations

ADVANTAGE GROUP ASSOCIATES, INC.

215 SE Wildflower Court

Pleasant Hill, IA 50327

Tel: 515-262-2623

Web: www.annuityspecs.com

A third-party market research firm that tracks indexed annuity and indexed life products, carriers and sales.

AMERICAN BANKERS ASSOCIATION

1120 Connecticut Avenue NW Washington, DC 20036 Tel: 800-BANKERS

Fax: 202-828-4540

Web: www.aba.com

Represents banks of all sizes on issues of national importance for financial institutions and their customers. Brings together all categories of banking institutions, including community, regional and money center banks and holding companies, as well as savings associations, trust companies and savings banks.

AMERICAN BANKERS INSURANCE ASSOCIATION

1120 Connecticut Avenue, NW Washington, DC 20036 Tel: 202-663-5163

Fax: 202-828-4546

Web: www.theabia.com

A separately chartered affiliate of the American Bankers Association. A full service association for bank insurance interests dedicated to furthering the policy and business objectives of banks in insurance.

AMERICAN FINANCIAL SERVICES ASSOCIATION

115 S. LaSalle Street, Suite 3300 Chicago, IL 60603-3801 Tel: 800-224-0900

Fax: 312-683-2373

Web: www.americanfinsvcs.com

The national trade association for market funded providers of financial services to consumers and small businesses.

BANK ADMINISTRATION INSTITUTE

One North Franklin, Suite 1000 Chicago, IL 60606-3421 Tel: 888-284-4078

Fax: 800-375-5543

Web: www.bai.org

A professional organization devoted exclusively to improving the performance of financial services companies through strategic research and information, education and training.

BANK FOR INTERNATIONAL SETTLEMENTS

CH-4002, Basel, Centralbahnplatz 2

Basel, Switzerland

Tel: 41-61-280-8080

Fax: 41-61-280-9100

Web: www.bis.org

An international organization which fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability.

134 I.I.I. Insurance Handbook

Directories

BANK INSURANCE & SECURITIES ASSOCIATION

303 West Lancaster Avenue, Suite 2D

Wayne, PA 19087

Tel: 610-989-9047

Fax: 610-989-9102

Web: www.bisanet.org

Fosters the full integration of securities and insurance businesses with depository institutions’ traditional banking businesses. Participants include executives from the securities, insurance, investment advisory, trust, private banking, retail, capital markets and commercial divisions of depository institutions.

BANK INSURANCE MARKET RESEARCH GROUP

154 East Boston Post Road Mamaroneck, NY 10543 Tel: 914-381-7475

Web: www.singerpubs.com

Provides market research and investment sales data to the bank and insurance industries based on in-depth surveys

of depository and insurance entities augmented by analysis of government data.

BANKINSURANCE.

COM NEWSLETTER

823 King of Prussia Road Radnor, PA 19087 Tel: 610-254-0440

Fax: 610-254-5044

Web: www.bankinsurance.com

A monthly electronic publication that distills the important news stories in the bank insurance and investment marketplace with information, impact and analytic benchmarking not found elsewhere.

CERTIFIED FINANCIAL PLANNER BOARD OF STANDARDS, INC.

1425 K Street NW, Suite 500 Washington, DC 20005 Tel: 202-379-2200 Fax: 202-379-2299

Web: www.cfp.net

Group whose mission is to create awareness of the importance of financial planning and the value of the financial planning process and to help underserved populations have access to competent and ethical financial planning.

COLLEGE SAVINGS

PLANS NETWORK

PO Box 11910

Lexington, KY 40578-1910 Tel: 859-244-8175

Web: www.collegesavings.org

The College Savings Plans Network is an affiliate to the National Association of State Treasurers. It is intended to make higher education more attainable. The Network serves as a clearinghouse for information on existing college savings programs.

THE COMMITTEE OF

ANNUITY INSURERS

c/o Davis & Harman LLP

1455 Pennsylvania Avenue NW, Suite 1200

Tel: 202-347-2230

Fax: 202-393-3310

Web: www.annuity-insurers.org Group whose goal is to address federal legislative and regulatory issues relevant to the annuity industry and to participate in the development of federal tax and securities policies regarding annuities.

I.I.I. Insurance Handbook 135

Directories

COMMODITY FUTURES

TRADING COMMISSION

Three Lafayette Centre

1155 21st Street NW

Washington, DC 20581

Tel: 202-418-5000

Fax: 202-418-5521

Web: www.cftc.gov

Independent agency created by Congress to protect market participants against manipulation, abusive trade practices and fraud.

CONFERENCE OF STATE BANK SUPERVISORS

1155 Connecticut Avenue NW, 5th Floor Washington, DC 20036-4306 Tel: 202-296-2840

Fax: 202-296-1928

Web: www.csbs.org

National organization that advocates on behalf of the nation’s state banking system.

CONSUMERS BANKERS ASSOCIATION

1000 Wilson Boulevard, Suite 2500 Arlington, VA 22209-3912 Tel: 703-276-1750

Fax: 703-528-1290

Web: www.cbanet.org

This group is the recognized voice on retail banking issues in the nation’s capital.

DMA FINANCIAL SERVICES COUNCIL

1120 Avenue of the Americas New York, NY 10036-6700 Tel: 212-768-7277 Fax: 212-302-6714

Web: www.the-dma.org

Integrates the direct marketing concept, its tactics and its practices with mainstream insurance and financial services marketing to create a strategic business synergism,

a division of the Direct Marketing Association.

EASTBRIDGE CONSULTING GROUP, INC.

50 Avon Meadow Lane

Avon, CT 06001

Tel: 860-676-9633

Web: www.eastbridge.com

Provides consulting, marketing, training and research services to financial services firms, including those involved in worksite marketing and the distribution of individual and employee benefits products.

EMPLOYEE BENEFIT RESEARCH INSTITUTE

1100 13th Street NW, Suite 878 Washington, DC 20037-1896 Tel: 202-659-0670 Fax: 202-775-6312

Web: www.ebri.org

The Institute’s mission is to advance the public’s, the media’s and policymakers’ knowledge and understanding of employee benefits and their importance to the U.S. economy.

FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)

550 17th Street NW Washington, DC 20429-9990 Tel: 877-275-3342 Web: www.fdic.gov

The FDIC’s mission is to maintain the stability of and public confidence in the nation’s financial system. To achieve this goal, the FDIC has insured deposits and promoted safe and sound banking practices since 1933.

136 I.I.I. Insurance Handbook

Directories

FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL

3501 Fairfax Drive Arlington, VA 22201-2305 Tel: 703-516-5487 Fax: 703-516-5588

Web: www.ffiec.gov

A formal interagency body empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System.

FEDERAL RESERVE

20th Street and Constitution Avenue NW Washington, DC 20551 Tel: 202-452-3000

Web: www.federalreserve.gov

Central bank of the United States, founded by Congress in 1913 to provide the nation with a safer, more flexible and more stable monetary and financial system.

FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA)

1735 K Street, NW

Washington, DC 20006

Tel: 301-590-6500

Fax: 240-386-4838

Web: www.finra.org

Largest non-governmental regulator for all securities firms doing business in the United States. Created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange.

THE FINANCIAL PLANNING ASSOCIATION

4100 East Mississippi Avenue, Suite 400 Denver, CO 80246-3053 Tel: 800-322-4237

Fax: 303-759-0749

Web: www.fpanet.org

Group whose primary aim is to foster the value of financial planning and advance the financial planning profession.

FINANCIAL SERVICES FORUM

601 13th Street NW, Suite 750 South Washington, DC 20005 Tel: 202-457-8765

Fax: 202-457-8769

Web: www.financialservicesforum.org An organization of 20 chief executive officers of major U.S. financial services firms dedicated to the execution and coordination of activities designed to promote the development of an open and competitive financial services industry.

THE FINANCIAL SERVICES ROUNDTABLE

1001 Pennsylvania Avenue NW, Suite 500 South

Washington, DC 20004

Tel: 202-289-4322

Fax: 202-628-2507

Web: www.fsround.org

A forum for U.S. financial industry leaders working together to determine and influence the most critical public policy concerns related to the integration of the financial services.

FUTURES INDUSTRY ASSOCIATION

2001 Pennsylvania Avenue NW, Suite 600

Washington, DC 20006

Tel: 202-466-5460

Fax: 202-296-3184

Web: www.futuresindustry.org

Association representative of all organizations

that have an interest in the futures market.

I.I.I. Insurance Handbook 137

Directories

GLOBAL ASSOCIATION OF RISK PROFESSIONALS

111 Town Square Place, Suite 1215 Jersey City, NJ 07310 Tel: 201-719-7210

Fax: 201-222-5022

Web: www.garp.com

International group whose aim is to encourage and enhance communications between risk professionals, practitioners and regulators worldwide.

THE HEDGE FUND ASSOCIATION

2875 Northeast 191st Street, Suite 900 Aventura, FL 33180 Tel: 202-478-2000

Fax: 202-478-1999

Web: www.thehfa.org

An international not-for-profit association of hedge fund managers, service providers and investors formed to unite the hedge fund industry and add to the increasing awareness of the advantages and opportunities in hedge funds.

INSURANCE MARKETPLACE STANDARDS ASSOCIATION

4550 Montgomery Avenue, Suite 700N Bethesda, MD 20814 Tel: 240-744-3030

Fax: 240-744-3031

Web: www.imsaethics.org

A nonprofit, independent organization created to strengthen consumer trust and confidence in the marketplace for individually sold life insurance, long-term care insurance and annuities.

INSURED RETIREMENT INSTITUTE

1331 L St, NW Ste. 310 Washington, DC 20005 Tel: 202-469-3000 Fax: 202-898-5786 Web: www.irionline.org

Source of knowledge pertaining to annuities, insured retirement products and

retirement planning; provides educational and informational resources. Formerly the National Association for Variable Annuities (NAVA).

INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION

360 Madison Avenue, 16th Floor New York, NY 10017 Tel: 212-901-6000

Fax: 212-901-6001

Web: www.isda.org

The association’s primary purpose is to encourage the prudent and efficient development of the privately negotiated derivatives business.

INVESTMENT COMPANY INSTITUTE

1401 H Street NW

Washington, DC 20005

Tel: 202-326-5800

Web: www.ici.org

The national association of the American investment company industry.

KEHRER-LIMRA

300 Day Hill Road Windsor, CT 06095-4761 Tel: 978-448-0198 Fax: 860-298-9555

Web: www.kehrerlimra.com Consultant focusing on the financial services marketplace. Conducts studies of sales penetration, profitability, compensation and compliance.

MICHAEL WHITE ASSOCIATES

823 King of Prussia Road Radnor, PA 19087 Tel: 610-254-0440

Fax: 610-254-5044

Web: www.bankinsurance.com Consulting firm that helps clients plan, develop and implement bank insurance sales programs. Conducts research on and benchmarks performance of bank insurance and investment fee income activities.

138 I.I.I. Insurance Handbook

MORTGAGE BANKERS ASSOCIATION OF AMERICA

1331 L Street NW Washington, DC 20006-3404 Tel: 202-557-2700 Web: www.mbaa.org

Represents the real estate finance industry.

MORTGAGE INSURANCE COMPANIES OF AMERICA (MICA)

1425 K Street, Suite 210

Washington, DC 20005

Tel: 202-682-2683

Fax: 202-842-9252

Web: www.privatemi.com

Represents the private mortgage insurance industry. MICA provides information on related legislative and regulatory issues, and strives to enhance understanding of the vital role private mortgage insurance plays in housing Americans.

MUSEUM OF AMERICAN FINANCE

48 Wall Street

New York, NY 10005

Tel: 212-908-4110

Fax: 212-908-4601

Web: www.financialhistory.org

An affiliate of the Smithsonian Institution, the museum is the nation’s only independent public museum dedicated to celebrating the spirit of entrepreneurship and the democratic free market tradition.

NATIONAL ASSOCIATION FOR FIXED ANNUITIES

2300 East Kensington Boulevard Milwaukee, WI 53211 Tel: 414-332-9306

Fax: 415-946-3532

Web: www.nafa.us

Promotes the growth, acceptance and understanding of annuity and life products; provides educational and informational resources.

Directories

NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS

3138 10th Street North Arlington, VA 22201-2149 Tel: 800-336-4644 Fax: 703-524-1082

Web: www.nafcunet.org

Trade association that exclusively represents the interests of federal credit unions before the federal government and the public.

NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS

2901 Telestar Court, PO Box 12012 Falls Church, VA 22042-1205 Tel: 703-770-8100; 877-866-2432 Fax: 703-770-8224 Web: www.naifa.org

Professional association representing health and life insurance agents.

NATIONAL ASSOCIATION OF INVESTMENT PROFESSIONALS

Tel: 952-322-4322

Web: www.naip.com/

Promotes the interests and the image of its financial professionals members, and encourages and facilitates higher levels of competency in members so that they may better serve the investing public.

THE NATIONAL ASSOCIATION OF PERSONAL FINANCIAL ADVISORS

3250 North Arlington Heights Road Suite 109

Arlington Heights, IL 60004 Tel: 847-483-5400 Fax: 847-483-5415

Web: www.napfa.org

Organization of fee-only financial planning professionals serving individuals and institutions.

I.I.I. Insurance Handbook 139

Directories

NATIONAL ASSOCIATION OF PROFESSIONAL INSURANCE AGENTS

400 North Washington Street Alexandria, VA 22314-2353 Tel: 703-836-9340 Fax: 703-836-1279

Web: www.pianet.com

Trade association of independent insurance agents.

NATIONAL CREDIT UNION ADMINISTRATION

1775 Duke Street Alexandria, VA 22314-3428 Tel: 703-518-6300 Fax: 703-518-6660

Web: www.ncua.gov

An independent agency in the executive branch of the federal government responsible for chartering, insuring, supervising and examining federal credit unions.

NATIONAL FUTURES ASSOCIATION

300 South Riverside Plaza, #1800 Chicago, IL 60606-6615 Tel: 312-781-1300

Fax: 312-781-1467

Web: www.nfa.futures.org

Industrywide self-regulatory organization for the commodity futures industry.

NATIONAL REVERSE MORTGAGE LENDERS ASSOCIATION

1400 16th Street NW, Suite 420 Washington, DC 20036 Tel: 202-939-1760

Fax: 202-265-4435

Web: www.nrmlaonline.org

The group educates consumers about the opportunity to utilize reverse mortgages and trains lenders to be sensitive to the needs of older Americans.

OFFICE OF THRIFT SUPERVISION

1700 G Street NW Washington, DC 20552 Tel: 202-906-6000 Web: www.ots.treas.gov

The primary regulator of all federal and many state-chartered thrift institutions, which include savings banks and savings and loan associations.

OPTIONS INDUSTRY COUNCIL

One North Wacker Drive, Suite 500 Chicago, IL 60606 Tel: 800-678-4667

Web: www.optionscentral.com Nonprofit association created to educate the investing public and brokers about the benefits and risks of exchange-traded options.

PENSION RESEARCH COUNCIL

The Wharton School of the University of Pennsylvania, 3620 Locust Walk, 3000 Steinberg Hall – Dietrich Hall Philadelphia, PA 19104-6302 Tel: 215-898-7620

Fax: 215-573-3418

Web: www.pensionresearchcouncil.org/ about

Organization committed to generating debate on key policy issues affecting pensions and other employee benefits.

RETIREMENT INCOME INDUSTRY ASSOCIATION

101 Federal Street, Suite 1900 Boston, MA 02110 Tel: 617-342-7390

Fax: 617-342-7080

Web: www.riia-usa.org

Financial services industry association focusing on the financial and public policy issues related to the income needs of retirees. Members include insurance companies, banks, securities firms and others.

140 I.I.I. Insurance Handbook

SECURITIES AND EXCHANGE COMMISSION

100 F Street NE

Washington, DC 20549

Tel: 202-942-8088

Web: www.sec.gov

Primary mission is to protect investors and maintain the integrity of the securities markets.

SECURITIES INDUSTRY AND FINANCIAL MARKETS ASSOCIATION (SIFMA)

120 Broadway, 35th Floor New York, NY 10271-0080 Tel: 212-313-1200 Fax: 212-313-1301

Web: www.sifma.org

Association bringing together the shared interests of securities firms to accomplish common goals.

SOCIETY OF FINANCIAL SERVICES PROFESSIONALS

17 Campus Boulevard, Suite 201 Newtown Square, PA 19073-3230 Tel: 610-526-2500 Fax: 610-527-1499

Web: www.financialpro.org Advances the professionalism of credentialed members with state-of-the-art resources to serve their clients’ financial needs.

TOWERGROUP

Two Charles River Place, 63 Kendrick Street Needham, MA 02494-2708 Tel: 781-292-5200

Fax: 781-449-6982

Web: www.towergroup.com

Research and advisory firm focused exclusively on the global financial services industry.

Directories

VARDS/MORNINGSTAR, INC.

225 West Wacker Drive

Chicago, IL 60606

Tel: 312-696-6000

Web: http://corporate.morningstar.com Software technology and research data firm that helps annuity manufacturers, distributors, and financial advisors implement new technology and business practices in the sale and servicing of annuities.

Agents And Brokers

(See also state organizations section)

AGENTS FOR CHANGE

1001 Pennsylvania Avenue, NW

Suite 500 South

Washington, D.C. 20004

Tel: 202 589-1929

Fax: 202 628-2507

Web: www.agents4change.net

A trade association of insurance agents and brokers from across all lines of insurance working together to enact a national insurance charter to allow producers and insurers the option of being regulated at either the federal or state level.

AMERICAN ASSOCIATION OF MANAGING GENERAL AGENTS

150 South Warner Road, Suite 156 King of Prussia, PA 19406 Tel: 610-225-1999

Fax: 610-225-1996

Web: http://www.aamga.org Membership association of managing general agents of insurers.

I.I.I. Insurance Handbook 141

Directories

THE COUNCIL OF INSURANCE AGENTS AND BROKERS

701 Pennsylvania Avenue NW, Suite 750 Washington, DC 20004-2608 Tel: 202-783-4400

Fax: 202-783-4410

Web: http://www.ciab.com

A trade organization representing leading commercial insurance agencies and brokerage firms.

INDEPENDENT INSURANCE AGENTS

BROKERS OF AMERICA, INC.

127 S. Peyton Street Alexandria, VA 22314 Tel: 800-221-7917 Fax: 703-683-7556 Web: www.iiaba.org

Trade association of independent insurance agents and brokers.

LATIN AMERICAN AGENTS ASSOCIATION

11819 Valley Boulevard

El Monte, CA 91732

Tel: 626-444-0999

Fax: 626-444-2999

Web: www.latinagents.com

An independent group of Hispanic agents and brokers, whose goal is to educate, influence and inform the insurance community about the specific needs of the Latino community in the United States.

LATIN AMERICAN ASSOCIATION OF INSURANCE AGENCIES

2550 Northwest 72nd Avenue, Suite 318

Miami, FL 33122

Tel: 305-477-1442

Fax: 305-477-5298

Web: www.laaia.com

An association of insurance professionals whose purpose is to protect the rights of its members, benefit the consumer through education, provide information and networking services, and promote active

participation in the political environment and community service.

NATIONAL ASSOCIATION OF PROFESSIONAL INSURANCE AGENTS

400 N. Washington Street Alexandria, VA 22314-2353 Tel: 703-836-9340 Fax: 703-836-1279

Web: www.pianet.com

Trade association of independent insurance agents.

NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS

2901 Telestar Court, PO Box 12012 Falls Church, VA 22042-1205 Tel: 703-770-8100 Web: www.naifa.org

Professional association representing health and life insurance agents.

Regulatory/ Legislative Organizations

NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS

2301 McGee Street, Suite 800 Kansas City, MO 64108-2662 Tel: 816-842-3600 Fax: 816-783-8175

Web: www.naic.org Organization of state insurance commissioners to promote uniformity

in state supervision of insurance matters and to recommend legislation in state legislatures.

142 I.I.I. Insurance Handbook

NATIONAL CONFERENCE OF INSURANCE GUARANTY FUNDS

300 North Meridian Street, Suite 1020 Indianapolis, IN 46204 Tel: 317-464-8199

Fax: 317-464-8180

Web: www.ncigf.org

Advisory organization to the state guaranty fund boards; gathers and disseminates information regarding insurer insolvencies.

NATIONAL CONFERENCE OF INSURANCE LEGISLATORS

385 Jordan Road

Troy, NY 12180

Tel: 518-687-0178

Fax: 518-687-0401

Web: www.ncoil.org

Organization of state legislators whose main area of public policy concern is insurance and insurance regulation.

Educational Organizations

THE AMERICAN COLLEGE

270 South Bryn Mawr Avenue Bryn Mawr, PA 19010 Tel: 610-526-1000

Fax: 610-526-1465

Web: www.theamericancollege.edu An independent, accredited nonprofit institution, originally The American College of Life Underwriters. Provides graduate and professional education in insurance and other financial services.

Directories

AMERICAN INSTITUTE FOR CHARTERED PROPERTY CASUALTY UNDERWRITERS

720 Providence Road, Suite 100 Malvern, PA 19355-0716 Tel: 800-644-2101

Fax: 610-640-9576

Web: www.aicpcu.org

An independent, nonprofit educational organization that confers the Chartered Property Casualty Underwriter (CPCU) professional designation on those individuals who meet its education, experience and ethics requirements.

CFA INSTITUTE

560 Ray C. Hunt Drive Charlottesville, VA 22903-2981 Tel: 800-247-8132 Fax: 434-951-5262

Web: www.cfainstitute.org

Global membership organization that awards the CFA designation, the institute leads the investment industry by setting the highest standards of ethics and professional excellence and vigorously advocating fair and transparent capital markets.

CPCU (CHARTERED PROPERTY CASUALTY UNDERWRITERS) SOCIETY

720 Providence Road Malvern, PA 19355-0709 Tel: 800-932-2728 Fax: 610-251-2780

Web: www.cpcusociety.org

Professional society established to foster the higher education of those engaged in insurance and risk management; encourages and conducts research.

I.I.I. Insurance Handbook 143

Directories

GRIFFITH INSURANCE EDUCATION FOUNDATION

623 High Street Worthington, OH 43085 Tel: 614-880-9870 Fax: 614-880-9872

Web: www.griffithfoundation.org

The foundation promotes the teaching and study of risk management and insurance at colleges and universities nationwide and provides education programs for public policymakers on the basic principles of risk management and insurance.

INSURANCE INSTITUTE OF AMERICA, INC.

720 Providence Road, Suite 100 Malvern, PA 19355-0716 Tel: 800-644-2101

Fax: 610-640-9576

Web: www.aicpcu.org

Provides educational programs and professional certification to people in property and liability insurance. Offerings range from entry-level to advanced, specialized programs. Certification is determined through the administration of national exams.

INSURANCE LIBRARY ASSOCIATION OF BOSTON

156 State Street

Boston, MA 02109

Tel: 617-227-2087

Fax: 617-723-8524

Web: www.insurancelibrary.org

The Insurance Library Association of Boston founded in 1887, is a nonprofit insurance association that has an extensive insurance library on all lines of insurance.

SCHOOL OF RISK MANAGEMENT, INSURANCE AND ACTUARIAL SCIENCE OF THE TOBIN COLLEGE OF BUSINESS AT STREET JOHN’S UNIVERSITY

101 Murray Street

New York, NY 10007

Tel: 212-277-5193

Fax: 212-277-5189

Web: www.stjohns.edu/academics/ graduate/tobin/srm

Insurance industry-supported college providing a curriculum leading to bachelor’s and master’s degrees in business administration, financial management of risk, insurance finance and actuarial science. The Kathryn and Shelby Cullom Davis Library (212-217-5135) provides services, products and resources to its members.

SOCIETY OF CERTIFIED INSURANCE COUNSELORS

The National Alliance for Insurance Education & Research, PO Box 27027 Austin, TX 78755-2027 Tel: 800-633-2165

Fax: 512-349-6194

Web: www.scic.com

National education program in property, liability and life insurance, with a continuing education requirement upon designation.

SOCIETY OF FINANCIAL EXAMINERS

174 Grace Boulevard Altamonte Springs, FL 32714 Tel: 407-682-4930 Fax: 407-682-3175

Web: www.sofe.org

Professional society for examiners of insurance companies, banks, savings and loans, and credit unions.

144 I.I.I. Insurance Handbook

SOCIETY OF INSURANCE TRAINERS AND EDUCATORS

6635 West Happy Valley Road Suite A104-#444 Glendale, AZ 85310

Tel: 623-547-6401

Fax: 623-547-6814

Web: www.insurancetrainers.org Professional organization of trainers and educators in insurance.

Specialty Organizations

Actuarial/Accounting

THE ACTUARIAL FOUNDATION

475 North Martingale Road, Suite 600 Schaumburg, IL 60173-2226 Tel: 847-706-3535

Fax: 847-706-3599

Web: www.actuarialfoundation.org Develops, funds and executes education and research programs that serve the public by harnessing the talents of actuaries.

AMERICAN ACADEMY OF ACTUARIES

1100 17th Street NW, 7th Floor Washington, DC 20036 Tel: 202-223-8196

Fax: 202-872-1948

Web: www.actuary.org

Professional association for actuaries. Issues standards of conduct and provides government liaison and advisory opinions.

CASUALTY ACTUARIAL SOCIETY

4350 North Fairfax Drive, Suite 250 Arlington, VA 22203 Tel: 703-276-3100

Fax: 703-276-3108

Web: www.casact.org

Promotes actuarial and statistical science in property/casualty insurance fields.

Directories

GROUP OF NORTH AMERICAN INSURANCE ENTERPRISES

40 Exchange Place, Suite 1707 New York, NY 10005 Tel: 212-480-0808

Fax: 212-480-9090

Web: www.gnaie.net

International group whose goals are to influence international accounting standards to ensure that they result in high quality accounting standards for insurance companies and, to that end, to increase communication between insurers doing business in North America and the International Accounting Standards Board and the U.S. Financial Accounting Standards Board.

INSURANCE ACCOUNTING AND SYSTEMS ASSOCIATION, INC.

3511 Shannon Road, Suite 160 Durham, NC 27707 Tel: 919-489-0991

Fax: 919-489-1994

Web: www.iasa.org

An international organization to promote the study, research and development

of modern techniques in insurance accounting and systems.

SOCIETY OF ACTUARIES

475 North Martingale Road, Suite 600 Schaumburg, IL 60173 Tel: 847-706-3500

Fax: 847-706-3599

Web: www.soa.org

An educational, research and professional organization dedicated to serving the public and its members. The Society’s vision is for actuaries to be recognized as the leading professionals in the modeling and management of financial risk and contingent events.

I.I.I. Insurance Handbook 145

Directories

Adjusters

NATIONAL ASSOCIATION OF INDEPENDENT INSURANCE ADJUSTERS

825 West State Street, Suite 117-C&B

Geneva, IL 60134

Tel: 630-397-5012

Fax: 630-397-5013

Web: www.naiia.com

Association of claims adjusters and firms operating independently on a fee basis for all insurance companies.

NATIONAL ASSOCIATION OF PUBLIC INSURANCE ADJUSTERS

21165 Whitefield Place #105 Potamac Falls, VA 20165 Tel: 703-433-9217 Web: www.napia.com

Association of adjusters who are employed by policyholders.

Alternative Markets

CAPTIVE INSURANCE COMPANIES ASSOCIATION

4248 Park Glen Rd.

Minneapolis, MN 55416

Tel: 952-928-4655

Fax: 952-929-1318

Web: www.cicaworld.com

Organization that disseminates information useful to firms that utilize the captive insurance company concept to solve corporate insurance problems.

NATIONAL RISK RETENTION ASSOCIATION

4248 Park Glen Road Minneapolis, MN 55416 Tel: 952-928-4656 Fax: 952-929-1318 Web: www.nrra-usa.org

The voice of risk retention group and purchasing group liability insurance

programs, organized pursuant to the Federal Liability Risk Retention Act.

SELF-INSURANCE INSTITUTE OF AMERICA

PO Box 1237 Simpsonville, SC 29681 Tel: 800-851-7789 Fax: 864-962-2483 Web: www.siia.org

Organization that fosters and promotes alternative methods of risk protection.

Auto/Auto Insurance

AUTOMOBILE INSURANCE PLANS SERVICE OFFICE

302 Central Avenue

Johnston, RI 02919

Tel: 401-946-2600

Fax: 401-528-1409

Web: www.aipso.com

Develops and files rates and provides other services for state-mandated automobile insurance plans.

CERTIFIED AUTOMOTIVE PARTS ASSOCIATION

1518 K Street NW, Suite 306 Washington, DC 20005 Tel: 202-737-2212 Fax: 202-737-2214

Web: www.capacertified.org

Nonprofit organization formed to develop and oversee a test program guaranteeing the suitability and quality of automotive parts.

146 I.I.I. Insurance Handbook

Automation and Claims Services

ACORD

Two Blue Hill Plaza, 3rd Floor, PO Box 1529,

Pearl River, NY 10965-8529 Tel: 845-620-1700 Fax: 845-620-3600

Web: www.acord.com

An industry-sponsored institute serving as the focal point for improving the computer processing of insurance transactions through the insurance agency system.

IVANS (INSURANCE VALUE ADDED NETWORK SERVICES)

100 First Stamford Place Stamford, CT 06902 Tel: 800-288-4826 Fax: 203-698-7299 Web: www.ivans.com

An industry-sponsored organization offering a data communications network linking agencies, companies and providers of data to the insurance industry.

Aviation

GLOBAL AEROSPACE, INC.

51 John F. Kennedy Parkway Short Hills, NJ 07078 Tel: 973-379-0800

Fax: 973-379-8602

Web: www.aau.com

A pool of property/casualty companies engaged in writing all classes of aviation insurance.

U.S. AVIATION UNDERWRITERS, INC.

One Seaport Plaza, 199 Water Street New York, NY 10038-3526 Tel: 212-952-0100

Web: www.usau.com Underwriting managers for Aircraft Insurance Group.

Directories

Community Development

INSURANCE INDUSTRY CHARITABLE FOUNDATION

1990 North California Boulevard, Suite 230 Walnut Creek, CA 94596 Tel: 925-280-8009

Fax: 925-280-8059

Web: www.iicf.org

The Insurance Industry Charitable Foundation seeks to help communities and enrich lives by combining the collective strengths of the industry to provide grants, volunteer service and leadership.

NEIGHBORWORKS AMERICA

1325 G Street NW, Suite 800 Washington, DC 20005-3100 Tel: 202-220-2300 Fax: 202-376-2600

Web: www.nw.org/network/ neighborworksprogs/insurance/default.asp The goal of this group is to develop partnerships between the insurance industry and NeighborWorks organizations to better market the products and services of both, for the benefit of the customers and communities they serve.

Crime/Fraud

COALITION AGAINST INSURANCE FRAUD

1012 14th Street NW, Suite 200 Washington, DC 20005 Tel: 202-393-7330

Fax: 202-393-7329

Web: www.insurancefraud.org

An alliance of consumer, law enforcement, and insurance industry groups dedicated to reducing all forms of insurance fraud through public advocacy and education.

I.I.I. Insurance Handbook 147

Directories

INSURANCE COMMITTEE FOR ARSON CONTROL

3601 Vincennes Road

Indianapolis, IN 46268

Tel: 317-876-6226

Fax: 317-879-8408

Web: www.arsoncontrol.org All-industry coalition that serves as a catalyst for insurers’ anti-arson efforts and a liaison with government agencies and other groups devoted to arson control.

INTERNATIONAL ASSOCIATION OF INSURANCE FRAUD AGENCIES, INC.

PO Box 10018

Kansas City, MO 64171

Tel: 816-756-5285

Fax: 816-756-5287

Web: www.iaifa.org

An international association opening the doors of communication, cooperation and exchange of information in the fight against sophisticated global insurance and related financial insurance fraud.

INTERNATIONAL ASSOCIATION OF SPECIAL INVESTIGATION UNITS

8015 Corporate Drive, Suite A Baltimore, MD 21236 Tel: 410-931-3332

Fax: 410-931-2060

Web: www.iasiu.com

Group whose goals are to promote a coordinated effort within the industry to combat insurance fraud and to provide education and training for insurance investigators.

NATIONAL INSURANCE

CRIME BUREAU (NICB)

1111 East Touhy Avenue, Suite 400 Des Plaines, IL 60018 Tel: 847-544-7000

Web: www.nicb.org

Not-for-profit organization dedicated to

combating crime and vehicle theft.

NATIONAL INSURANCE CRIME BUREAU (NICB) – WASHINGTON MEDIA RELATIONS

12701 Fair Lakes Circle, Suite 380 Fairfax, VA 22033

Tel: 703-222-6250; 888-241-7159

Fax: 703-469-2206

Web: www.nicb.org

NEW YORK ALLIANCE AGAINST INSURANCE FRAUD

c/o New York Insurance Association, Inc., 130 Washington Ave Albany, NY 12210

Tel: 518-432-3576

Fax: 518-432-4220

Web: www.fraudny.com

A cooperative effort of insurance companies in New York State to educate the industry about the costs of insurance fraud, the many forms is can take and what can be done to fight it.

Crop Insurance

AMERICAN ASSOCIATION OF CROP INSURERS

1 Massachusetts Avenue NW, Suite 800 Washington, DC 20001-1401 Tel: 202-789-4100

Fax: 202-408-7763

Web: www.cropinsurers.com/

Trade association of insurance companies to promote crop insurance.

CROP INSURANCE

RESEARCH BUREAU

10800 Farley, Suite 330

Overland Park, KS 66210

Tel: 913-338-0470; 888-274-2472

Fax: 913-339-9336

Web: www.cropinsurance.org Crop insurance trade organization.

148 I.I.I. Insurance Handbook

NATIONAL CROP INSURANCE SERVICES, INC.

8900 Indian Creek Parkway, Suite 600 Overland Park, KS 66210-1567 Tel: 913-685-2767

Fax: 913-685-3080

Web: www.ag-risk.org

National trade association of insurance companies writing hail insurance, fire insurance and insurance against other weather perils to growing crops, with rating and research services for crop-hail and rain insurers.

Flood Insurance

FEDERAL INSURANCE ADMINISTRATION

500 C Street SW

Washington, DC 20472

Tel: 800-621-3362

Fax: 800-827-8112

Web: www.fema.gov

Administers the federal flood insurance program.

International

ASSOCIATION OF SUPERINTENDENTS OF INSURANCE OF LATIN AMERICA

c/o Superintendencia de Valores y Seguros Chile

Av. Libertador Bernardo O’Higgins 1449, Piso 11

Tel: 56-2-473-4000

Fax: 56-2-473-4101

Web: www.assalweb.org

International body that brings together the highest regulatory authorities in the Latin American insurance field. Comprised of 20 Latin American countries in addition to two associate members, Spain and Portugal.

Directories

AXCO INSURANCE INFORMATION SERVICES

39 Cornhill

London, United Kingdom Tel: 44-20-7623-9828 Fax: 44-20-7623-9003 Web: www.axcoinfo.com Research firm providing detailed

insurance, healthcare and pensions market information on 160 countries.

GENEVA ASSOCIATION

53 Route de Malagnou

Geneva, CH-1208

Tel: 41-22-707-66-00

Fax: 41-22-736-75-36

Web: www.genevaassociation.org/ World organization formed by some 80 chief executive officers of leading insurance companies in Europe, North America, South America, Asia, Africa and Australia. Its main goal is to research the growing economic importance of worldwide insurance activities in the major sectors of the economy. Produces The Geneva Papers and other publications.

GROUP OF NORTH AMERICAN INSURANCE ENTERPRISES

40 Exchange Place, Suite 1707 New York, NY 10005 Tel: 212-480-0808

Fax: 212-480-9090

Web: www.gnaie.net

I.I.I. Insurance Handbook 149

Directories

INSURANCE SERVICES NETWORK

PO Box 455

Lake Forest, IL 60045

Tel: 847-234-4762

Fax: 847-295-2608

Web: www.isn-inc.com

Independent insurance information

company offering international industry

news and analyses of the regulatory climate

in dozens of countries. Publishes Insurance

Research Letter.

INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS

c/o Bank For International Settlements Basel, Switzerland CH-4002 Tel: 41-61-225-7300

Fax: 41-61-280-9151

Web: www.iaisweb.org

Represents insurance supervisory

authorities of some 100 jurisdictions.

Promotes cooperation among members and

sets international standards for insurance

supervision.

INTERNATIONAL FEDERATION OF RISK AND INSURANCE MANAGEMENT ASSOCIATIONS, INC.

c/o RIMS

1065 Avenue of the Americas, 13th Floor

Tel: 212-286-9292

Fax: 212-655-5931

Web: www.rims.org/ifrima

Worldwide umbrella organization dedicated to the advancement of risk management and its practice through education and interaction.

INTERNATIONAL INSURANCE SOCIETY, INC.

101 Murray Street New York, NY 10007 Tel: 212-815-9291 Fax: 212-815-9297 Web: www.iisonline.org

A nonprofit membership organization whose mission is to facilitate international understandings, the transfer of ideas and innovations, and the development of personal networks across insurance markets through a joint effort of leading executives and academics throughout the world.

INTERNATIONAL SOCIAL

SECURITY ASSOCIATION

Institute for OSH, Rue Gachardstraat 88 b 4 Brussels, Belgium 1050 Tel: 32-2-643-44-92

Fax: 32-2-643-44-40

Web: http://information.prevention.issa.int Nonprofit international organization consisting of institutions and administrative bodies dealing with diverse aspects of social security in countries around the world.

INTERNATIONAL TRADE ADMINISTRATION

U.S. Department of Commerce, 1401 Constitution Avenue Washington, DC 20230 Tel: 202-482-3809

Fax: 202-482-5819

Web: www.ita.doc.gov

Division of the U.S. Department of Commerce that helps U.S. businesses participate in the growing global marketplace.

150 I.I.I. Insurance Handbook

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD)

2, rue André Pascal

75775 Paris Cedex, France 16 Tel: 33-1-45-24-82-00 Fax: 33-1-45-24-85-00

Web: www.oecd.org

International organization of industrialized, market-economy countries. The OECD publishes numerous reports, including the Insurance Statistics Yearbook.

Directories

SIGMA

c/o Swiss Re

Mythenquai 50/60, PO Box Tel: 41-43-285-2121 Fax: 41-43-285-2999

Web: www.swissre.com

The sigma publication series provides comprehensive information on international insurance markets and in-depth analyses of economic trends and strategic issues in insurance, reinsurance and financial services.

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD), WASHINGTON CENTER

2001 L Street NW, Suite 650 Washington, DC 20036-4922 Tel: 202-785-6323 Fax: 202-785-0350

Web: www.oecdwash.org

Markets the publications of the OECD in the and serves as an information center for the U.S. market. The Center is engaged in public outreach activities and acts as

a liaison office to the U.S. legislative and executive branches.

OVERSEAS PRIVATE INVESTMENT CORPORATION

1100 New York Avenue NW Washington, DC 20527 Tel: 202-336-8400 Fax: 202-336-7949

Web: www.opic.gov

Self-sustaining U.S. government agency

providing political risk insurance and

finance services for U.S. investment in

developing countries.

TOPICS

c/o Munich Re

Munich, Germany 80802 Tel: 49-89-38-91-0

Web: www.munichre.com

This annual publication presents a detailed account of the natural catastrophes that occurred in the past year and also examines long-term trends.

WORLD FACT BOOK

c/o Central Intelligence Agency (CIA)

Washington, DC 20505

Tel: 703-482-0623

Fax: 703-482-1739

Web: www.cia.gov/cia/publications/ factbook/index.html

Produced by the CIA’s Directorate of Intelligence, the fact book is a comprehensive resource of facts and statistics on more than 250 countries and other entities.

I.I.I. Insurance Handbook 151

Directories

Legal Issues and Services

AMERICAN PREPAID LEGAL SERVICES INSTITUTE

321 North Clark Street

Chicago, IL 60610

Tel: 312-988-5751

Fax: 312-988-5710

Web: www.aplsi.org

National membership organization providing information and technical assistance to lawyers, insurance companies, administrators, marketers and consumers regarding group and prepaid legal service plans.

AMERICAN TORT REFORM ASSOCIATION

1101 Connecticut Avenue NW, Suite 400 Washington, DC 20036 Tel: 202-682-1163

Fax: 202-682-1022

Web: www.atra.org

A broad based, bipartisan coalition of more than 300 businesses, corporations, municipalities, associations and professional firms that support civil justice reform.

ARBITRATION FORUMS, INC.

3350 Buschwood Park Drive, Building 3, Suite 295

Tampa, FL 33618-1500

Tel: 888-272-3453

Fax: 813-931-4618

Web: www.arbfile.org

Nonprofit provider of interinsurance dispute resolution services for self-insureds, insurers and claim service organizations.

DEFENSE RESEARCH INSTITUTE

150 North Michigan Avenue, Suite 300

Chicago, IL 60601

Tel: 312-795-1101

Fax: 312-795-0747

Web: www.dri.org

A national and international membership association of lawyers and others concerned with the defense of civil actions.

NATIONAL ARBITRATION FORUM

PO Box 50191

Minneapolis, MN 55405-0191 Tel: 800-474-2371 Fax: 952-345-1160

Web: www.arbitration-forum.com A leading neutral administrator of arbitration, mediation and other forms of alternative dispute resolution worldwide.

NATIONAL STRUCTURED SETTLEMENTS TRADE ASSOCIATION

2025 M Street NW, Suite 800 Washington, DC 20036 Tel: 202-367-1159 Fax: 202-367-2159

Web: www.nssta.com

Trade association representing consultants, insurers and others who are interested in the resolution and financing of tort claims through periodic payments.

Marine and Ground Transportation

AMERICAN INSTITUTE OF

MARINE UNDERWRITERS

14 Wall Street, 8th Floor New York, NY 10005 Tel: 212-233-0550 Fax: 212-227-5102 Web: www.aimu.org

Provides information of concern to marine underwriters and promotes their interests.

152 I.I.I. Insurance Handbook

INLAND MARINE UNDERWRITERS ASSOCIATION

14 Wall Street, 8th Floor New York, NY 10005 Tel: 212-233-0550 Fax: 212-227-5102 Web: www.imua.org

Forum for discussion of problems of common concern to inland marine insurers.

Medical Malpractice/

Professional Liability

PHYSICIAN INSURERS ASSOCIATION OF AMERICA

2275 Research Boulevard, Suite 250 Rockville, MD 20850 Tel: 301-947-9000

Fax: 301-947-9090

Web: www.thepiaa.org

Trade association representing physician-owned mutual insurance companies that provide medical malpractice insurance.

PROFESSIONAL LIABILITY UNDERWRITING SOCIETY (PLUS)

5353 Wayzata Boulevard, Suite 600 Minneapolis, MN 55416

Tel: 952-746-2580; 800-845-0788

Fax: 952-746-2599

Web: www.plusweb.org

An international, nonprofit association that provides educational opportunities and programs to enhance the professionalism of its members.

Directories

Nuclear Insurance

AMERICAN NUCLEAR INSURERS

95 Glastonbury Boulevard, Suite 300 Glastonbury, CT 06033 Tel: 860-682-1301

Fax: 860-659-0002

Web: www.amnucins.com

A nonprofit unincorporated association through which liability insurance protection is provided against hazards arising out of nuclear reactor installations and their operations.

Professional

APIW: A PROFESSIONAL ASSOCIATION OF WOMEN IN INSURANCE

555 Fifth Avenue, 8th Floor New York, NY 10017 Tel: 212-867-0228

Fax: 212-867-2544

Web: www.apiw.org

A professional association of women in the insurance and reinsurance industry and related fields. Provides professional education, networking and support services to encourage the development of professional leadership among its members.

INSURANCE DATA MANAGEMENT ASSOCIATION, INC. (IDMA)

545 Washington Boulevard Jersey City, NJ 07310-1686 Tel: 201-469-3069 Fax: 201-748-1690

Web: www.idma.org

An independent, nonprofit, professional, learned association dedicated to increasing the level of professionalism, knowledge and visibility of insurance data management. To achieve that goal, IDMA focuses on courses and certification, forums and seminars, and data management publications and periodicals.

I.I.I. Insurance Handbook 153

Directories

INSURANCE REGULATORY EXAMINERS SOCIETY

12710 South Pflumm Road, Suite 200

Olathe, KS 66062

Tel: 913-768-4700

Fax: 913-768-4900

Web: www.go-ires.org

Nonprofit professional and educational association for examiners and other professionals working in insurance industry.

NAIW

9343 East 95th Court South Tulsa, OK 74133 Tel: 800-766-6249

Fax: 918-743-1968

Web: www.naiw.org

Fosters educational programs for members.

Promotes public safety and service programs.

NATIONAL AFRICAN-AMERICAN INSURANCE ASSOCIATION

1718 M Street NW, PO Box 1110 Washington, DC 20036 Tel: 866-56-NAAIA

Web: www.naaia.org

NAAIA fosters the nationwide presence, participation and long-term financial success of African-American insurance professionals within the greater insurance community and provides its members and the insurance industry a forum for sharing information and ideas that enhance business and professional development.

Property Insurance Plans

PROPERTY INSURANCE

PLANS SERVICE OFFICE

27 School Street, Suite 302 Boston, MA 02108 Tel: 617-371-4175

Fax: 617-371-4177

Web: www.pipso.com

Provides technical and administrative services to state property insurance plans.

Reinsurance

INTERMEDIARIES AND REINSURANCE UNDERWRITERS ASSOCIATION, INC.

971 Route 202 North

Branchburg, NJ 08876

Tel: 908-203-0211

Fax: 908-203-0213

Web: www.irua.com

Educational association to encourage the exchange of ideas among reinsurers worldwide writing principally treaty reinsurance.

REINSURANCE ASSOCIATION OF AMERICA

1301 Pennsylvania Avenue NW, Suite 900 Washington, DC 20004 Tel: 202-638-3690

Fax: 202-638-0936

Web: www.reinsurance.org

Trade association of property/casualty rein-surers; provides legislative services for members.

NATIONAL ASSOCIATION OF INSURANCE AND FINANCIAL ADVISORS

2901 Telestar Court, PO Box 12012 Falls Church, VA 22042-1205 Tel: 703-770-8100; 877-866-2432 Fax: 703-770-8224 Web: www.naifa.org

Professional association representing health and life insurance agents.

Risk Management

LOSS EXECUTIVES ASSOCIATION

PO Box 37

Tenafly, NJ 07670

Tel: 732-388-5700

Fax: 732-388-0171

Web: www.lossexecutives.com

A professional association of property loss executives providing education to the industry.

154 I.I.I. Insurance Handbook

NONPROFIT RISK MANAGEMENT CENTER

15 North King Street, Suite 203 Leesburg, VA 20176 Tel: 202-785-3891

Fax: 202-296-0349

Web: www.nonprofitrisk.org

Conducts research and education on risk management and insurance issues of special concern to nonprofit organizations.

PUBLIC RISK MANAGEMENT ASSOCIATION

500 Montgomery Street, Suite 750 Alexandria, VA 22314 Tel: 703-528-7701

Fax: 703-739-0200

Web: www.primacentral.org

Membership organization representing risk managers in state and local public entities.

RISK AND INSURANCE MANAGEMENT SOCIETY, INC.

1065 Avenue of the Americas, 13th Floor New York, NY 10018 Tel: 212-286-9292

Web: www.rims.org

Organization of corporate buyers of insurance, which makes known to insurers the insurance needs of business and industry, supports loss prevention and provides a forum for the discussion.

SOCIETY OF RISK MANAGEMENT CONSULTANTS

330 S. Executive Dr., Suite 301 Brookfield, WI 53005-4275 Tel: 800-765-SRMC

Web: www.srmcsociety.org

International organization of professionals engaged in risk management, insurance and employee benefits consulting.

Directories

Safety/Disaster Mitigation

ADVOCATES FOR HIGHWAY AND AUTO SAFETY

750 First Street NE, Suite 901 Washington, DC 20002 Tel: 202-408-1711 Fax: 202-408-1699

Web: www.saferoads.org

An alliance of consumer, safety and insurance organizations dedicated to highway and auto safety.

HIGHWAY LOSS DATA INSTITUTE

1005 North Glebe Road, Suite 800 Arlington, VA 22201 Tel: 703-247-1600

Fax: 703-247-1595

Web: www.hwysafety.org

Nonprofit organization to gather, process and provide the public with insurance data concerned with human and economic losses resulting from highway accidents.

INSTITUTE FOR BUSINESS

HOME SAFETY (IBHS)

4775 East Fowler Avenue Tampa, FL 33617

Tel: 813-286-3400

Fax: 813-286-9960

Web: www.disastersafety.org

The Institute for Business & Home Safety works to reduce the social and economic effects of natural disasters and other property losses by conducting research and advocating improved construction, maintenance and preparation practices.

I.I.I. Insurance Handbook 155

Directories

INSURANCE INSTITUTE FOR HIGHWAY SAFETY (IIHS)

1005 North Glebe Road, Suite 800 Arlington, VA 22201 Tel: 703-247-1500

Fax: 703-247-1588

Web: www.highwaysafety.org Research and education organization dedicated to reducing loss, death, injury, and property damage on the highways. Fully funded by property/casualty insurers.

LIGHTNING PROTECTION INSTITUTE

PO Box 99

Maryville, MO 64468

Tel: 800-488-6864

Web: www.lightning.org Not-for-profit organization dedicated to ensuring that its members’ lightning protection systems are the best possible quality in design, materials and installation.

NATIONAL FIRE PROTECTION ASSOCIATION

One Batterymarch Park

Quincy, MA 02169-7471

Tel: 617-770-3000

Fax: 617-770-0700

Web: www.nfpa.org

Independent, nonprofit source of

information on fire protection, prevention

and suppression. Develops and publishes

consensus fire safety standards; sponsors

national Learn Not to Burn campaign.

NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION (NHTSA)

1200 New Jersey Avenue SE, West Building Washington, DC 20590 Tel: 888-327-4236

Fax: 202-366-2106

Web: www.nhtsa.dot.gov

Carries out programs and studies aimed at reducing economic losses in motor vehicle crashes and repairs.

NATIONAL INSTITUTE OF BUILDING SCIENCES

1090 Vermont Avenue NW, Suite 700 Washington, DC 20005-4905 Tel: 202-289-7800

Fax: 202-289-1092

Web: www.nibs.org/pubsbetec.html A nonprofit, nongovernmental organization bringing together representatives of government, the professions, industry, labor and consumer interests to focus on the identification and resolution of problems and potential problems that hamper the construction of safe, affordable structures for housing, commerce and industry throughout the United States.

NATIONAL SAFETY COUNCIL

1121 Spring Lake Drive

Itasca, IL 60143-3201

Tel: 630-285-1121 or 800-621-7619

Fax: 630-285-1315

Web: www.nsc.org

Provides national support and leadership in

the field of safety, publishes safety material

and conducts public information and

publicity programs.

fire insurance claims.

UNDERWRITERS’ LABORATORIES, INC.

333 Pfingsten Road Northbrook, IL 60062-2096 Tel: 847-272-8800 Fax: 847-272-8129

Web: www.ul.com

Investigates and tests electrical materials and other products to determine that fire prevention and protection standards are being met.

156 I.I.I. Insurance Handbook

Surety, Financial Guaranty and Mortgage

ASSOCIATION OF FINANCIAL GUARANTY INSURORS

Mackin & Company,139 Lancaster Street

Albany, NY 12210

Tel: 518-449-4698

Fax: 518-432-5651

Web: www.afgi.org

Trade association of the insurers and reinsurers of municipal bonds and asset-backed securities.

MORTGAGE INSURANCE COMPANIES OF AMERICA (MICA)

1425 K Street, Suite 210

Washington, DC 20005

Tel: 202-682-2683

Fax: 202-842-9252

Web: www.privatemi.com

NATIONAL ASSOCIATION OF SURETY BOND PRODUCERS (NASBP)

1828 L Street NW, Suite 720 Washington, DC 20036-5104 Tel: 202-686-3700 Fax: 202-686-3656

Web: www.nasbp.org

NASBP members are professionals who specialize in providing surety bonds for construction and other commercial purposes to companies and individuals needing the assurance offered by surety bonds. Its members have broad knowledge of the surety marketplace and the business strategies and underwriting differences among surety companies.

Directories

SURETY ASSOCIATION OF AMERICA

1101 Connecticut Avenue NW, Suite 800 Washington, DC 20036 Tel: 202-463-0600

Fax: 202-463-0606

Web: www.surety.org

Statistical, rating, development and advisory organization for surety companies.

SURETY INFORMATION OFFICE

1828 L Street NW, Suite 720 Washington, DC 20036-5104 Tel: 202-686-7463 Fax: 202-686-3656

Web: www.sio.org

NATIONAL ASSOCIATION OF PROFESSIONAL SURPLUS LINES OFFICES, LTD.

200 Northeast 54th Street, Suite 200 Kansas City, MO 64118 Tel: 816-741-3910

Fax: 816-741-5409

Web: www.napslo.org

Professional association of wholesale brokers, excess and surplus lines companies, affiliates and supporting members.

Surplus Lines

(See state organizations section)

I.I.I. Insurance Handbook 157

Directories

Title Insurance

AMERICAN LAND TITLE ASSOCIATION

1828 L Street NW, Suite 705 Washington, DC 20036 Tel: 800-787-ALTA Fax: 888-787-ALTA

Web: www.alta.org

Trade organization for title insurers, abstractors and agents. Performs statistical research and lobbying services.

Weather

WEATHER RISK MANAGEMENT ASSOCIATION (WRMA)

750 National Press Building, 529 14th

Street, NW

Washington, DC 20045

Tel: 202-289-3800

Fax: 202-223-9741

Web: www.wrma.org

The goal of the WRMA is to serve the weather risk management industry by providing forums for discussion and interaction with others associated with financial weather products.

Workers Compensation

INTEGRATED BENEFITS INSTITUTE

595 Market Street, Suite 810 San Francisco, CA 94105 Tel: 415-222-7280 Fax: 415-222-7281

Web: www.ibiweb.org

A private, nonprofit organization that provides research, discussion and analysis, data services and legislative review to measure and improve integrated benefits programs, enhance efficiency in delivery of all employee-based benefits and promote effective return-to-work.

NATIONAL ACADEMY OF SOCIAL INSURANCE

1776 Massachusetts Avenue NW, Suite 615 Washington, DC 20036 Tel: 202-452-8097

Fax: 202-452-8111

Web: www.nasi.org/info-url_nocat2708/ info-url_nocat.htm

A nonprofit, nonpartisan organization made up of the nation’s leading experts on social insurance. Its mission is to promote understanding and informed policymaking on social insurance and related programs through research, public education, training and the open exchange of ideas.

NCCI HOLDINGS, INC.

901 Peninsula Corporate Circle Boca Raton, FL 33487 Tel: 561-893-1000

Fax: 561-893-1191

Web: www.ncci.com

Develops and administers rating plans and systems for workers compensation insurance.

WORKERS COMPENSATION RESEARCH INSTITUTE

955 Massachusetts Avenue Cambridge, MA 02139 Tel: 617-661-9274 Web: www.wcrinet.org

A nonpartisan, not-for-profit membership organization conducting public policy research on workers’ compensation, health care and disability issues. Members include employers, insurers, insurance regulators and state regulatory agencies, as well as several state labor organizations.

158 I.I.I. Insurance Handbook

Research and Ratings Organizations

A.M. BEST COMPANY INC.

Ambest Road

Oldwick, NJ 08858

Tel: 908-439-2200

Web: www.ambeStreetcom

Rating organization and publisher of reference books and periodicals relating to the insurance industry.

AIR WORLDWIDE CORPORATION

131 Dartmouth Street

Boston, MA 02116

Tel: 617-267-6645

Fax: 617-267-8284

Web: www.air-worldwide.com

Risk modeling and technology firm that develops models of global natural hazards, enabling companies to identify, quantify and plan for the financial consequences of catastrophic events.

AMERICAN ASSOCIATION OF INSURANCE SERVICES

1745 South Naperville Road Wheaton, IL 60189-8132

Tel: 630-681-8347; 800-564-AAIS

Fax: 630-681-8356

Web: www.aaisonline.com Rating, statistical and advisory organization, made up principally of

small and medium-sized property/casualty companies.

Directories

CONNING RESEARCH AND CONSULTING, INC.

One Financial Plaza Hartford, CT 06103-2627 Tel: 860-299-2000

Web: www.conningresearch.com Research and consulting firm that offers a growing array of specialty information products, insights and analyses of key issues confronting the insurance industry.

EQECAT

475 14th Street, 5th Floor, Suite 550 Oakland, CA 94612-1900 Tel: 510-817-3100

Web: www.eqecat.com

Provider of products and services for managing natural and man-made risks. Provides innovative catastrophe management solutions for property and casualty insurance underwriting, accumulation management and transfer of natural hazard and terrorism risk.

FITCH CREDIT RATING COMPANY

One State Street Plaza

New York, NY 10004

Tel: 212-908-0500

Fax: 212-480-4435

Web: www.fitchratings.com

Assigns claims-paying ability ratings to insurance companies.

HIGHLINE DATA LLC

One Alewife Center, Suite 460 Cambridge, MA 02140 Tel: 877-299-9424

Fax: 617-864-2396

Web: www.highlinedata.com

An information and data services company comprised of two principal product lines: National Underwriter Insurance Data Services and Highline Banking Data Services.

I.I.I. Insurance Handbook 159

Directories

INSURANCE ADVISORY BOARD C/O THE CORPORATE EXECUTIVE BOARD

1919 North Lynn Street Arlington, VA 22209 Tel: 571-303-3000 Fax: 571-303-3100

Web: www.insuranceadvisoryboard.com Membership organization of senior executives committed to sharing insights and strategies for addressing common challenges in the life and property/casualty (general) insurance markets.

INSURANCE RESEARCH COUNCIL (A DIVISION OF THE AMERICAN INSTITUTE FOR CPCU)

718 Providence Road, PO Box 3025 Malvern, PA 19355-0725 Tel: 610-644-2212

Fax: 610-640-5388

Web: www.ircweb.org

Provides the public and the insurance industry with timely research information relevant to public policy issues affecting risk and insurance.

ISO

545 Washington Boulevard Jersey City, NJ 07310-1686 Tel: 800-888-4476 Fax: 201-748-1472

Web: www.iso.com

MOODY’S INVESTORS SERVICE

7 World Trade Center at 250 Greenwich Street

New York, NY 10007 Tel: 212-553-1653 Fax: 212-553-0882 Web: www.moodys.com

Global credit analysis and financial information firm.

MSB

2885 South Calhoun Road New Berlin, WI 53151

Tel: 262-780-2800; 800-809-0016

Fax: 262-780-0306

Web: www.msbinfo.com

Building cost research company providing data and estimating technologies to the property insurance industry.

NATIONAL INDEPENDENT STATISTICAL SERVICE

3601 Vincennes Road, PO Box 68950 Indianapolis, IN 46268 Tel: 317-876-6200

Fax: 317-876-6210

Web: www.niss-stat.org

National statistical agent and advisory organization for all lines of insurance, except workers compensation.

RAND INSTITUTE FOR CIVIL JUSTICE

1776 Main Street, PO Box 2138 Santa Monica, CA 90407-2138 Tel: 310-393-0411 Fax: 310-451-6979

Web: www.rand.org/centers/icj Organization formed within The Rand Corporation to perform independent, objective research and analysis concerning the civil justice system.

160 I.I.I. Insurance Handbook

RISK MANAGEMENT SOLUTIONS, INC.

7015 Gateway Boulevard Newark, CA 94560 Tel: 510-505-2500

Fax: 510-505-2501

Web: www.rms.com

Provides products and services for the quantification and management of catastrophe risk associated with natural perils as well as products for weather derivatives and enterprise risk management for the property/casualty insurance industry.

SNL FINANCIAL LC

One SNL Plaza, PO Box 2124 Charlottesville, VA 22902 Tel: 434-977-1600 Fax: 434-977-4466

Web: www.snl.com

Research firm that collects, standardizes and disseminates all relevant corporate, financial, market and M&A data as well as news and analytics for the industries it covers: banking, specialized financial services, insurance, real estate and energy.

SOCIETY OF INSURANCE RESEARCH

631 Eastpointe Drive

Shelbyville, IN 46176

Tel: 317-398-3684

Fax: 317-642-0535

Web: www.sirnet.org

Stimulates insurance research and fosters exchanges among society members on research methodology.

STANDARD & POOR’S RATING GROUP

55 Water Street

New York, NY 10041

Tel: 212-438-1000

Web: www.standardandpoors.com

Directories

Monitors the credit quality of bonds and other financial instruments of corporations, governments and supranational entities.

THE STREET.COM

14 Wall Street, 15th floor New York, NY 10005 Web: www.thestreet.com/

Evaluates the strength of insurance and financial services firms.

WARD GROUP

11500 Northlake Drive, Suite 305 Cincinnati, OH 45249-1662 Tel: 513-791-0303 Fax: 513-985-3442

Web: www.wardinc.com

Management consulting firm specializing in the insurance industry.

I.I.I. Insurance Handbook 161

Alphabetical Index

Alphabetical
Index	of

Associations

State specific associations are not included	American Institute of Marine Underwriters,
in this alphabetical index; for these, look	152
under individual state listings starting on	American Insurance Association (AIA), 128
page 162.	American Land Title Association, 158
	American Nuclear Insurers, 153
A.M. Best Company Inc., 159	American Prepaid Legal Services Institute,
Acord, 147	152
The Actuarial Foundation, 145	American Tort Reform Association, 152
Advantage Group, 134	APIW: A Professional Association of
Advocates for Highway and Auto Safety,	Women in Insurance, 153
155	Arbitration Forums, Inc., 152
Agents for Change, 141	Association of Financial Guaranty Insurors,
Air Worldwide Corporation, 159	157
America’s Health Insurance Plans (AHIP),	Association of Superintendents of
132	Insurance of Latin America, 149
American Academy of Actuaries, 145	Automobile Insurance Plans Service Office,
American Association of Crop Insurers, 148	146
American Association of Insurance Services,	Axco Insurance Information Services, 149
159

American Association of Managing General	Bank Administration Institute, 134
Agents, 141	Bank for International Settlements, 134
American Bankers Association, 134	Bank Insurance & Securities Association,
American Bankers Insurance Association,	135
134	Bank Insurance Market Research Group,
The American College, 143	135
American Council of Life Insurers (ACLI),	Bankinsurance.com, 135
132

American Financial Services Association,	Captive Insurance Companies Association,
134	146
American Institute for Chartered Property	Casualty Actuarial Society, 145
Casualty Underwriters, 143	Certified Automotive Parts Association, 146

162 I.I.I. Insurance Handbook

		Alphabetical Index

Certified Financial Planner Board of
Standards, Inc., 135	Geneva Association, 149
CFA Institute, 143	Global Aerospace, Inc., 147
Chartered Property Casualty Underwriters	Global Association of Risk Professionals,
Society. See CPCU	138
Coalition Against Insurance Fraud, 147	Group of North American Insurance
College Savings Plans Network, 135	Enterprises, 145, 149
The Committee of Annuity Insurers, 135	Griffith Insurance Foundation, 144
Commodity Futures Trading Commission,
	The Hedge Fund Association, 138
136
Conference of State Bank Supervisors, 136	Highline Data Llc, 159
Conning Research and Consulting, Inc.,	Highway Loss Data Institute, 155
159
	Independent Insurance Agents & Brokers of
Consumers Bankers Association, 136
The Council of Insurance Agents and	America, Inc., 129, 142
Brokers, 142	Inland Marine Underwriters Association,
CPCU (Chartered Property Casualty	153
Underwriters) Society, 143	Institute for Business & Home Safety
Crop Insurance Research Bureau, 148	(IBHS), 129, 155
	Insurance Accounting and Systems

Defense Research Institute, 152	Association, Inc., 145
DMA Financial Services Council, 136	Insurance Advisory Board c/o the Corporate
	Executive Board, 160

Eastbridge Consulting Group, Inc., 136	Insurance Committee for Arson Control,
Employee Benefit Research Institute, 136	148
EQECAT, 159	Insurance Data Management Association,
	Inc. (IDMA), 153

Federal Deposit Insurance Corporation	Insurance Industry Charitable Foundation,
(FDIC), 136	147
Federal Financial Institutions Examination	Insurance Information Institute (I.I.I.), 129
Council, 137	Insurance Information Network of
Federal Insurance Administration, 149	California (IINC), 129
Federal Reserve, 137	Insurance Institute for Highway Safety
Financial Industry Regulatory Authority,	(IIHS), 156
137	Insurance Institute of America, Inc., 144
Financial Markets Center, 137	Insurance Library Association of Boston,
The Financial Planning Association, 137	144
Financial Services Coordinating Council,	Insurance Marketplace Standards
137	Association, 138
Financial Services Forum, 137	Insurance Regulatory Examiners Society,
The Financial Services Industry Council, 75	154
Financial Services Roundtable, 137	Insurance Research Council, 129, 160
Fitch Credit Rating Company, 159	Insurance Services Network, 150
Futures Industry Association, 137	Insured Retirement Foundation, 144
	Integrated Benefits Institute, 158

I.I.I. Insurance Handbook 163

Alphabetical Index

Intermediaries and Reinsurance		MSB, 160
Underwriters Association, Inc., 154		Museum of American Financial History,
International Association of Insurance		139
Fraud Agencies, Inc., 148

International Association of Insurance		NASD, 139
Supervisors, 150		National Academy of Social Insurance, 158
International Association of Special		National African-American Insurance
Investigation Units, 148		Association, 154
International Federation of Risk and		National Alliance of Life Companies
Insurance Management Associations,		(NALC), 133
Inc., 150		National Arbitration Forum, 152
International Finance and Commodities		National Association for Fixed Annuities,
Association, 138		139
International Insurance Society, Inc., 150		National Association of Federal Credit
International Social Security Association,		Unions, 139
150		National Association of Health
International Swaps and Derivatives		Underwriters, 133
Association, 138		National Association of Independent
International Trade Administration, 150		Insurance Adjusters, 146
Investment Company Institute, 138		National Association of Insurance and
ISO, 130, 160		Financial Advisors, 130, 142, 154
IVANS (Insurance Value Added Network		National Association of Insurance
Services), 147		Commissioners, 142
		National Association of Insurance Women,

Kehrer-Limra, 138		154
		National Association of Investment

Latin American Agents Association, 142		Professionals, 139
Latin American Association of Insurance		National Association of Mutual Insurance
Agencies, 142		Companies (NAMIC), 130
The Life and Health Insurance Foundation		The National Association of Personal
for Education, 132		Financial Advisors, 139
Life Insurance Settlement Association, 133		National Association of Professional
Lightning Protection Institute, 156		Insurance Agents (PIA), 130, 142
Limra International, 133		National Association of Professional Surplus
LOMA (Life Office Management		Lines Offices, Ltd., 130, 157
Association), 133		National Association of Public Insurance
Loss Executives Association, 155		Adjusters, 146
		National Association of Surety Bond

MIB, INC., 133		Producers, 157
Michael White Associates, 138		National Conference of Insurance Guaranty
Moody’s Investors Service, 160		Funds, 143
Mortgage Bankers Association of America,		National Conference of Insurance
139		Legislators, 143
Mortgage Insurance Companies of America		National Credit Union Administration, 140
(MICA), 139, 157		National Crop Insurance Services, Inc., 149

164 I.I.I. Insurance Handbook

Alphabetical Index

National Fire Protection Association, 156 National Futures Association, 140 National Highway Traffic Safety

Administration (NHTSA), 156 National Independent Statistical Service,

160

National Institute of Building Sciences, 156 National Insurance Crime Bureau (NICB),

130, 148

National Organization of Life and Health Insurance Guaranty Associations (NOLHGA), 133

National Reverse Mortgage Lenders Association, 140

National Risk Retention Association, 146 National Safety Council, 156 National Structured Settlements Trade

Association, 152

NCCI, 130, 131, 158

NeighborWorks Insurance Alliance, 147 New York Alliance Against Insurance Fraud,

148

Nonprofit Risk Management Center, 155

Office of Thrift Supervision, 140 Options Industry Council, 140 Organisation for Economic Co-operation

and Development (OECD), 151 Overseas Private Investment Corporation,

151

Pension Research Council, 140

Physician Insurers Association of America,

153

Professional Liability Underwriting Society

(PLUS), 153

Property Casualty Insurers Association of

America, 131

Property Insurance Plans Service Office, 154

Public Risk Management Association, 155

Rand Institute for Civil Justice, 160 Reinsurance Association of America, 132,

154

Retirement Income Industry Association,

140

Risk and Insurance Management Society,

Inc., 155

Risk Management Solutions, Inc., 161

School of Risk Management, Insurance and Actuarial Science of the Tobin College of Business at St. John’s University, 144

Securities and Exchange Commission, 141 Securities Industry and Financial Markets

Association, 141

Self-Insurance Institute of America, 146

SIGMA, 151

SNL Financial LC, 161 Society of Actuaries, 145

Society of Certified Insurance Counselors, 144

Society of Financial Examiners, 144 Society of Financial Services Professionals,

141

Society of Insurance Research, 161 Society of Insurance Trainers and

Educators, 145

Society of Risk management Consultants, 155

Standard and Poor’s Rating Group, 161 Surety Association of America, 132, 157 Surety Information Office, 132, 157

TheStreet.com, 161

Topics, 151

TowerGroup, 141

U.S. Aviation Underwriters, Inc., 147 Underwriters’ Laboratories, Inc., 156

Vards/Morningstar, Inc., 141

Ward Group, 161

Weather Risk Management Association

(WRMA), 158

Workers Compensation Research Institute,

158

World Fact Book, 151

I.I.I. Insurance Handbook 165

State Organizations

State

Organizations

Alabama

State Associations

NAIFA — Alabama

2820 Fairlane Drive, Suite A-1 Montgomery, Alabama 36116-1637 Tel: 334-271-4900 Fax: 334-271-4960

Web: www.naifa-alabama.com

Agent Associations

Alabama Independent Agents Association, Inc.

141 London Parkway Birmingham, Alabama 35211 Tel: 205-326-4129 Fax: 205-326-3086

Web: www.aiia.org

Professional Insurance Agents of Alabama

3805 Crestwood Parkway, Suite 140 Duluth, Georgia 30096

Tel: 770-921-7585; 800-233-4902

Fax: 770-921-7590

Web: www.piaal.com

Alaska

No State Associations

Agent Associations

Alaska Independent Insurance Agents & Brokers, Inc.

701 W. 41st Avenue, Suite 103 Anchorage, Alaska 99503 Tel: 907-349-2500 Fax: 907-349-1300

Web: www.aiiab.org

Professional Insurance Agents of Alaska

See PIA of Western Alliance (under Washington)

Arizona

State Associations

Arizona Insurance Council

PO Box 27006

Scottsdale, Arizona 85255

Tel: 602-996-7009

Fax: 602-996-7016

Web: www.azinsurance.org

National Association of

Insurance and Financial

Advisors (NAIFA – Arizona)

PO Box 4728

Scottsdale, Arizona 85261-4728 Tel: 480-661-6393 Fax: 480-661-6743

Web: www.naifa-az.org

Agent Associations

Independent Insurance Agents

Brokers of Arizona, Inc.

333 E. Flower Street Phoenix, Arizona 85012 Tel: 602-956-1851 Fax: 602-468-1392 Web: www.iiabaz.com

Professional Insurance Agents of Arizona

See PIA Western Alliance

(under Washington)

Western Insurance Agents

Association (WIAA)

See Western Insurance Agents

Association (under California)

166 I.I.I. Insurance Handbook www.iii.org /insurancehandbook

Other Organizations

The Surplus Line Association of Arizona

15849 N. 71st St., Suite 100 Scottsdale, Arizona 85254 Tel: 602-279-6344 Fax: 602-222-9332

Web: www.sla-az.org

Arkansas

State Associations

The National Association of Insurance and

Financial Advisors (NAIFA – Arkansas) 650 Edgewood Drive, Suite 201 Maumelle, Arkansas 72113 Tel: 501-851-6617

Fax: 501-851-1126

Web: http://arkansas.naifa.org

Agent Associations

Independent Insurance Agents of Arkansas

5000 North Shore Drive

North Little Rock, Arkansas 72118 Tel: 501-221-2444 Fax: 501-221-0364

Web: www.iiaar.org

Professional Insurance Agents of Arkansas

10 Corporate Hill, Suite 130 Little Rock, Arkansas 72205 Tel: 501-225-1645 Fax: 501-225-2550

Web: www.piaar.com

State Organizations

California

State Associations

Association of California Insurance Companies

1415 L Street, Suite 670 Sacramento, California 95814-3972 Tel: 916-449-1370 Fax: 916-449-1378

Web: www.acicnet.org

Association of California Life and Health Insurance Companies

1201 K Street, Suite 1820 Sacramento, California 95814 Tel: 916-442-3648 Fax: 916-442-1730

Web: www.aclhic.com

Insurance Information Network of California (IINC)

900 Wilshire Blvd., Suite 1414 Los Angeles, California 90017 Tel: 213-624-IINC Fax: 213-624-4432

Web: www.iinc.org

National Association of Insurance and Financial Advisors — California (NAIFA – California)

1451 River Park Drive, Suite 175 Sacramento, California 95815-4520 Tel: 916-646-8600 Fax: 916-646-8130

Web: www.naifacalifornia.org

I.I.I. Insurance Handbook 167

State Organizations

Pacific Association of Domestic Insurance Companies (PADIC)

1940 Burlin Way Auburn, California 95603 Tel: 530-888-6045 Fax: 530-888-6435

Personal Insurance Federation of California

1201 K Street, Suite 1220 Sacramento, California 95814 Tel: 916-442-6646 Fax: 916-446-9548

Web: www.pifc.org

Agent Associations

Professional Insurance Agents of California

See PIA Western Alliance (under Washington)

Western Insurance Agents Association (WIAA)

(Serving Arizona, California, Colorado, Nevada and New Mexico)

11190 Sun Center Drive, Suite 100 Rancho Cordova, California 95670 Tel: 916-443-4221; 800-553-4221 Fax: 916-443-5559

Web: www.wiaagroup.org

Other Organizations

Insurance Brokers & Agents of The West (IBA West)

7041 Koll Center Parkway, Suite 290 Pleasanton, California 94566

Tel: 800-772-8998 or 925-426-3300

Fax: 925-484-6014

Web: www.ibawest.com

Surplus Line Association of California

(Stamping Office)

50 California Street, 18th Fl. San Francisco, California 94111 Tel: 415-434-4900 Fax: 415-434-3716

Web: www.slacal.org

Colorado

State Associations

NAIFA — Colorado

Lundy Enterprises

PO Box 271273

Louisville, Colorado 80027

Tel: 303-283-6001

Fax: 303-362-5809

Web: www.naifa-colorado.org

Rocky Mountain Insurance

Information Association —

CO, NM, UT and WY

7951 E. Maplewood Avenue, Suite 130

Greenwood Village, Colorado 80111

Tel: 303-790-0216/800-355-9524

Fax: 303-790-0433

Web: www.rmiia.org

Agent Associations

Professional Independent Insurance Agents of Colorado &Agents Service Corporation

1660 Tower, 1660 S. Albion St., Suite 518 Denver, Colorado 80222 Tel: 303-512-0627

Fax: 303-512-0575

Web: www.piiac.com

168 I.I.I. Insurance Handbook

Other Organizations

Surplus Line Association of Colorado

PO Box 1500

Denver, Colorado 80201

Tel: 303-331-9399

Fax: 303-331-9006

Web: www.colosla.org

Connecticut

State Associations

Insurance Association of Connecticut

21 Oak Street #607

Hartford, Connecticut 06106-8003

Tel: 860-547-0610

Fax: 860-547-0615

NAIFA of Connecticut, Inc.

15 Chipmunk Lane Norwalk, Connecticut 06850 Tel: 203-866-4700 Fax: 203-866-1788

Web: www.naifa-ct.org

Agent Associations

Independent Insurance Agents of Connecticut, Inc.

30 Jordan Lane

Wethersfield, Connecticut 06109 Tel: 860-563-1950 Fax: 860-563-6730

Web: www.iiact.org

Professional Insurance Agents of Connecticut

See PIA (under New York)

State Organizations

Delaware

State Associations

NAIFA — Delaware

646 Plaza Drive

Newark, Delaware 19702

Tel: 302-283-1880

Fax: 302-283-1885

Web: www.naifanet.com/delaware

Agent Associations

Independent Insurance

Agents of Delaware

See Insurance Agents & Brokers (under Pennsylvania)

District Of Columbia

State Associations

District of Columbia

Insurance Federation

PO Box 34757

Washington, D.C. 20043

Tel: 202-797-0757

Fax: 202-797-0758

Web: www.dcif.org

Agent Associations

Professional Insurance

Agents of D.C.

See PIA (under Virginia)

I.I.I. Insurance Handbook 169

State Organizations

Florida

State Associations

Florida Insurance Council

2888 Remington Green Lane, Suite A Tallahassee, Florida 32308 Tel: 850-386-6668

Fax: 850-386-7371

Web: www.flains.org

NAIFA—Florida

1836 Hermitage Blvd., #200 Tallahassee, Florida 32308-7706 Tel: 850-422-1701 Fax: 850-422-2762

Web: www.faifa.org

Agent Associations

Florida Association of Insurance Agents (FAIA)

3159 Shamrock South

PO Box 12129

Tallahassee, Florida 32317-2129 Tel: 850-893-4155 Fax: 850-668-2852

Web: www.faia.com

Professional Insurance Agents of Florida, Inc.

1390 Timberlane Road Tallahassee, Florida 32312 Tel: 850-893-8245 Fax: 850-893-8316

Web: www.piafl.org

Other Organizations

Florida Surplus Lines Association

PO Box 331444

Atlantic Beach, Florida 32233-1444 Tel: 904-631-1322 Fax: 904-270-1198

Web: www.FloridaSurplusLinesAssociation. com

Georgia

State Associations

Georgia Association of Insurance and Financial Advisors (NAIFA – Georgia)

677 Main Street Suwanee, Georgia 30024

Tel: 770-455-4459; 800-422-0773

Fax: 770-455-4469

Web: www.naifageorgia.org

Georgia Association of Property/ Casualty Insurance Companies

PO Box 1

Gainesville, Georgia 30503

Tel: 770-535-4001

Fax: 770-532-7361

Georgia Insurance

Information Service

1225 Johnson Ferry Rd., Suite 330 Marietta, Georgia 30068

Tel: 770-565-3806; 770-317-5749

Web: www.giis.org

Agent Associations

Independent Insurance

Agents of Georgia, Inc.

3186 Chestnut Drive Connector Doraville, Georgia 30340 Tel: 770-458-0093

Fax: 770-458-8007

Web: www.iiag.org

Professional Insurance Agents of Georgia

3805 Crestwood Parkway, Suite 140 Duluth, Georgia 30096

Tel: 770-921-2578; 800-233-4902

Fax: 770-921-7590

Web: www.piaga.com

170 I.I.I. Insurance Handbook

Hawaii

State Associations

Hawaii Insurers Council

1003 Bishop Street Suite 2010 Pauahi Tower Honolulu, Hawaii 96813 Tel: 808-525-5877 Fax: 808-525-5879

Web: www.hawaiiinsurerscouncil.org

NAIFA Hawaii

516 Kawaihae Street, #E

Honolulu, Hawaii 96825

Tel: 808-394-3451

Agent Associations

Hawaii Independent Insurance Agents Association

84 N. King Street, 2nd Floor Honolulu, Hawaii 96817 Tel: 808-531-3125 Fax: 808-531-9995

Other Organizations

Hawaii Insurance Bureau, Inc.

715 South King Street, Suite 320 Honolulu, Hawaii 96813 Tel: 808-531-2771

Fax: 808-536-3516

Web: www.hibinc.com

Idaho

State Associations

Idaho Insurance Council

1408 Brooklawn Dr. Boise, Idaho 83709-2049 Tel: 208-850-2342 Web: www.iiabi.org

State Organizations

NAIFA — Idaho

7684 Remuda Drive

Boise, Idaho 83709

Tel: 208-362-4953; 208-287-4433

Fax: 208-362-3580

Web: www.naifanet.com/idaho

NW Insurance Council

(Serving Idaho, Oregon and Washington) 101 Elliott Avenue West, Suite 520 Seattle, Washington 98119

Tel: 206-624-3330; Helpline: 800-664-4942

Fax: 206-624-1975

Web: www.nwinsurance.org

Agent Associations

Independent Insurance Agents

Brokers of Idaho, Inc.

595 South 14th Boise, Idaho 83702 Tel: 208-342-9326 Fax: 208-336-2901 Web: www.iiabi.org

Professional Insurance Agents of Idaho

See PIA Western Alliance

(under Washington)

Other Organizations

Idaho Surveying &

Rating Bureau, Inc.

1871 South Cobalt Point Way Meridian, Idaho 83642 Tel: 208-343-5483

Fax: 208-895-8059

Web: www.isrb.com

Surplus Line Association of Idaho, Inc.

(Stamping Office)

595 South 14th Street

Boise, Idaho 83702

Tel: 208-336-2901

Fax: 208-336-2901

Web: www.idahosurplusline.org

I.I.I. Insurance Handbook 171

State Organizations

Illinois

State Associations

NAIFA — Illinois

60 Adloff Lane Springfield, Illinois 62703

Tel: 217-529-0126; 800-543-9961

Fax: 217-529-0977

Web: www.naifa-il.com

Illinois Association of Mutual Insurance Companies

PO Box 116

Ohlman, Illinois 62076

Tel: 217-563-8300

Fax: 888-403-0935

Web: www.iamic.org

Illinois Insurance Association

Illinois Insurance Hotline

217 East Monroe Street, Suite 110 Springfield, Illinois 62701 Tel: 217-789-1010

Fax: 217-789-6559

Web: www.illinoisinsurance.org

Illinois Life Insurance Council

600 South Second, Suite 401 Springfield, Illinois 62704 Tel: 217-544-1637 Fax: 217-544-6604

Agent Associations

Independent Insurance Agents of Illinois (IIA of IL)

4360 Wabash Avenue Springfield, Illinois 62711

Tel: 217-793-6660; 800-628-6436

Fax: 217-793-6744

Web: www.iiaofillinois.org

Other Organizations

Surplus Line Association of Illinois

100 S. Wacker Drive, Ste. 350 Chicago, Illinois 60606 Tel: 312-263-1993 Fax: 312-263-1996

Web: www.slai.org

Indiana

State Associations

Indiana Association of Insurance and Financial Advisors (INAIFA)

3009 East 96th Street Indianapolis, Indiana 46240 Tel: 317-844-6268 Fax: 317-844-7659

Web: www.naifa-indiana.org

Insurance Institute of Indiana, Inc.

201 N. Illinois Street, Suite 1410 Indianapolis, Indiana 46204 Tel: 317-464-2450 Fax: 317-464-2460

Web: www.insuranceinstitute.org

Agent Associations

Independent Insurance Agents of Indiana, Inc.

3435 West 96th Street Indianapolis, Indiana 46268 Tel: 317-824-3780; 800-438-4424 Fax: 317-824-3786 Web: www.bigi.org

172 I.I.I. Insurance Handbook

Iowa

State Associations

Iowa Insurance Institute

215 10th St., Suite 1300

Des Moines, Iowa 50309

Tel: 515-288-2500

Fax: 515-43-0654

Web: http://iowains.com

Federation of Iowa Insurers

700 Walnut, Suite 1600 Des Moines, Iowa 50309 Tel: 515-283-8023 Fax: 515-283-3108

Web: www.federationofiowainsurers.com

National Association of Insurance and Financial Advisors (IOWA)

409 Washington Street, Suite A Cedar Falls, Iowa 50613 Tel: 866-632-1491

Fax: 703-342-0386

Web: www.naifaiowa.org

Agent Associations

Independent Insurance Agents of Iowa

4000 Westown Parkway

West Des Moines, Iowa 50266 Tel: 515-223-6060 Fax: 515-222-0610

Web: www.iiaiowa.org

Kansas

State Associations

National Association of Insurance and

Financial Advisors of Kansas 825 S. Kansas, Suite 500Topeka, Kansas 66612Tel: 785-354-7770 Fax: 785-233-2206

Web: www.kansasaifa.org

State Organizations

Kansas Association of Property &Casualty Insurance Companies

800 SW Jackson, Suite 900 Topeka, Kansas 66612-1259 Tel: 785-232-0545 Fax: 785-232-0005

Kansas Life Insurance Association

800 SW Jackson, Suite 900 Topeka, Kansas 66612-1259 Tel: 785-232-0545 Fax: 785-232-0005

Agent Associations

Kansas Association of Insurance Agents

815 S.W. Topeka Blvd.

Topeka, Kansas 66612

Tel: 785-232-0561

Fax: 785-232-6817

Web: www.kaia.com

Kentucky

State Associations

Insurance Institute of Kentucky

PO Box 54542

Lexington, Kentucky 40555-4542Tel: 859-543-9759 Fax: 859-263-0497 Web: www.iiky.org

NAIFA – Kentucky

12808 Townepark Way, Suite 200 Louisville, Kentucky 40243 Tel: 502-244-0150

Fax: 502-244-3111

Web: www.naifakentucky.org

I.I.I. Insurance Handbook 173

State Organizations

Kentucky Insurance Council

c/o Independent Insurance Agents of Kentucky, Inc.

13265 O’Bannon Station Way

Louisville, Kentucky 40223

Tel: 502-245-5432; 866-426-4425

Fax: 502-245-5750

Web: www.iiak.org

Agent Associations

Independent Insurance Agents of Kentucky, Inc.

13265 O’Bannon Station Way

Louisville, Kentucky 40223

Tel: 502-245-5432; 866-426-4425

Fax: 502-245-5750

Web: www.iiak.org

Professional Insurance Agents of Kentucky

107 Consumer Lane Frankfort, Kentucky 40601 Tel: 502-875-3888 Fax: 502-227-0839

Web: www.piaky.org

Other Organizations

Kentucky Surplus Lines Association

c/o Risk Placement Services, Inc.

PO Box 14032

Lexington, Kentucky 40512-4032 Tel: 859-245-2500 Fax: 859-272-9622

Web: www.rpslex.com

Louisiana

State Associations

Louisiana Insurers Conference

450 Laurel Street, Suite 1400 Baton Rouge, Louisiana 70801 Tel: 225-343-2776 Fax: 225-344-1132

Web: www.lainsconf.org

NAIFA — Louisiana

5526 Galeria Drive

Baton Rouge, Louisiana 70816 Tel: 225-293-5258 Fax: 225-292-3394

Web: www.naifalouisiana.org

Agent Associations

Independent Insurance Agents and Brokers of Louisiana, Inc.

9818 Bluebonnet Boulevard Baton Rouge, Louisiana 70810 Tel: 225-819-8007 Fax: 225-819-8027

Professional Insurance Agents of Louisiana, Inc.

8064 Summa Avenue, Suite C Baton Rouge, Louisiana 70809 Tel: 225-766-7770; 800-349-3434 Fax: 225-766-1601

Web: www.piaoflouisiana.com

Other Organizations

Louisiana Surplus Line Association

PO Box 446

Mandeville, Louisiana 70470-0446 Tel: 985-792-4798 Fax: 985-792-4796

Web: www.lsla.bizland.com

174 I.I.I. Insurance Handbook

Property Insurance Association of Louisiana (Independent Rating Bureau)

433 Metairie Road, Suite 203 Metairie, Louisiana 70005 Tel: 504-836-7980 Fax: 504-831-3444

Web: www.pial.org

Maine

State Associations

National Association of

Insurance and Financial

Advisors (NAIFA – Maine)

PO Box 2695 Bangor, Maine 04402-2695

Tel: 207-945-4766

Fax: 207-941-0241

Web: www.naifa-me.org

Agent Associations

Maine Insurance Agents Association

432 Western Avenue

Augusta, Maine 04330

Tel: 207-623-1875

Fax: 207-626-0275

Web: www.maineagents.com

Maryland

State Associations

League of Life & Health Insurers of Maryland

200 Duke of Gloucester Street Annapolis, Maryland 21401 Tel: 410-269-1554 Fax: 410-268-0612

State Organizations

Agent Associations

Independent Insurance Agents of Maryland, Inc.

2408 Peppermill Drive, Suite A Glen Burnie, Maryland 21061-3257 Tel: 410-766-0600; 800-544-3368 Fax: 410-766-0993 Web: www.iiamd.org

NAIFA — Maryland

9 State Circle, Suite 303 Annapolis, Maryland 21401 Tel: 877-304-9934 Fax: 443-458-0444

Web: www.naifa-maryland.org

Massachusetts

State Associations

Life Insurance Association of Massachusetts

501 Boylston Street

Boston, Massachusetts 02116

Tel: 617-375-9200

Fax: 617-375-1029

Massachusetts Insurance Federation, Inc.

Two Center Plaza, 8th Floor

Boston, Massachusetts 02108

Tel: 617-557-5538

Fax: 617-557-5675

Web: www.massinsurance.org

Agent Associations

Massachusetts Association of Insurance Agents

91 Cedar Street

Milford, Massachusetts 01757 Tel: 508-634-2900; 800-972-9312 Fax: 508-634-2929

Web: www.massagent.com

I.I.I. Insurance Handbook 175

State Organizations

Association Headquarters — NAIFA Massachusetts & New Hampshire

PO Box 500

Hingham, Massachusetts 02043

Tel: 617-266-1919; 800-480-8719 (In state)

Fax: 617-266-6849

Web: www.naifamass.org

Michigan

State Associations

Insurance Institute of Michigan

334 Townsend Street Lansing, Michigan 48933 Tel: 517-371-2880 Fax: 517-371-2882

Web: www.iiminfo.org

Life Insurance Association of Michigan

334 Townsend Street Lansing, Michigan 48933 Tel: 517-482-7058 Fax: 517-482-5405

NAIFA — Michigan

240 S. Bridge Street, Suite 210 DeWitt, Michigan 48820 Tel: 517-668-3960 Fax: 517-668-3961

Web: www.naifanet.com/michigan

Agent Associations

Michigan Association of Insurance Agents

1141 Centennial Way (48917)

PO Box 80620

Lansing, Michigan 48908-0620 Tel: 517-323-9473 Fax: 517-323-1629

Web: www.michagent.org

Other Organizations

Michigan Surplus Lines Association

215 Lakeview

Grosse Pointe Farms, Michigan 48236

Tel: 313-446-9636

Fax: 313-446-9706

Web: www.gossllc.com

Minnesota

State Associations

Insurance Federation of Minnesota

15490-101st Ave.

North Maple Grove, Minnesota 55369

Tel: 651-292-1099

Fax: 763-322-8831

Web: www.insurancefederation.org

Minnesota Association of Farm Mutual Insurance Companies Inc. (MAFMIC)

601 Elm Street East

PO Box 880

St. Joseph, Minnesota 56374 Tel: 320-271-0909 Fax: 320-277-0912

Web: www.mafmic.org

The National Association of Insurance andFinancial Advisors ( NAIFA – Minnesota)

1405 North Lilac Drive, Suite 121 Golden Valley, Minnesota 55422 Tel: 763-544-8087 Fax: 763-544-1631

Web: www.naifa-mn.org

176 I.I.I. Insurance Handbook

	State Organizations

Agent Associations	Other Organizations
Minnesota Independent	Mississippi State Rating Bureau
Insurance Agents & Brokers	2685 Crane Ridge Drive
7500 Flying Cloud Drive, Suite 900	PO Box 5231
Eden Prairie, Minnesota 55344	Jackson, Mississippi 39296-5231
Tel: 800-864-3846 or 952-835-4180	Tel: 601-981-2915
Fax: 952-835-4774	Fax: 601-981-2924
Web: www.miia.org	Web: www.msratingbureau.com

Mississippi

State Associations

National Association of Insurance and Financial Advisors

– Mississippi (NAIFA)

5475 Executive Place Jackson, Mississippi 39206 Tel: 601-981-1522

Fax: 601-981-2745

Web: www.naifams.org

Mississippi Life Companies Association

PO Box 78

Jackson, Mississippi 39205

Tel: 601-981-5332 x1461

Fax: 601-321-2931

Agent Associations

Independent Insurance Agents of Mississippi (IIAM)

124 Riverview Drive

Flowood, Mississippi 39232-8908 Tel: 601-939-9909; 800-898-0821 Fax: 601-939-9553 Web: www.msagent.org

Professional Insurance Agents Association of Mississippi

4 River Bend Place, Suite 115 Jackson, Mississippi 39232

Tel: 601-936-6474; 800-898-0136

Fax: 601-936-6477

Web: www.piams.com

Missouri

State Associations

NAIFA – Missouri

722 E. Capitol Avenue Jefferson City, Missouri 65101 Tel: 888-634-5202 Fax: 573-634-5954

Web: www.naifamo.org

Missouri Insurance Coalition

220 Madison Street, 3rd Floor Jefferson City, Missouri 65101 Tel: 573-893-4241 Fax: 573-893-4996

Web: www.moinsurancecoalition.com

Agent Associations

Missouri Association of Insurance Agents

2701 Industrial Drive

PO Box 1785

Jefferson City, Missouri 65102-1785 Tel: 573-893-4301; 800-617-3658 Fax: 573-893-3708

Web: www.missouriagent.org

I.I.I. Insurance Handbook 177

State Organizations

Montana

State Associations

NAIFA Montana

PO Box 2950

Bigfork, Montana 59911

Tel: 406-837-7254

Fax: 406-837-7255

Web: www.naifamt.org

Agent Associations

Independent Insurance Agents Association of Montana, Inc.

3131 Dredge Drive Helena, Montana 59602 Tel: 406-442-9555 Fax: 406-442-8263 Web: www.iiamt.org

Professional Insurance Agents of Montana See PIA of Western Alliance (under Washington)

Other Organizations

Montana Surplus Lines Agents Association

3131 Dredge Drive Helena, Montana 59602 Tel: 406-443-7324 Fax: 406-442-8263 Web: www.mslaa.org

Nebraska

State Associations

National Association of Insurance and Financial Advisors – Nebraska (NAIFA – Nebraska)

1633 Normandy Court, Suite A Lincoln, Nebraska 68512 Tel: 402-474-7723

Fax: 402-476-6547

Web: www.naifa-ne.org

Nebraska Insurance

Information Service

PO Box 81529

1220 Lincoln MallLincoln, Nebraska 68501

Tel: 402-434-8364

Fax: 402-434-8302

Web: www.nebins.com

Agent Associations

Independent Insurance Agents of Nebraska

8321 Northwoods Drive, Suite B Lincoln, Nebraska 68505

Tel: 402-476-2951; 800-377-3985

Fax: 402-476-1586

Web: www.iian.org

Professional Insurance Agents Association of Nebraska & Iowa

920 S. 107th Avenue, Suite 305 Omaha, Nebraska 68114

Tel: 402-392-1611; 877-717-2074

Fax: 402-392-2228

Web: www.pianebraska.com

178 I.I.I. Insurance Handbook

Nevada

State Associations

Nevada Insurance Council

PO Box 30367

Las Vegas, Nevada 89173-0367 Tel: 702-355-9007 Fax: 702-541-8615

Web: www.Nevadainsurancecouncil.com

NAIFA — Nevada

1122 Alta Vista Ct.

Sparks, Nevada 89434

Tel: 775-358-9058

Fax: 775-358-9187

Web: www.naifanv.org

Agent Associations

Nevada Independent Insurance Agents

310 North Stewart Street (89701)

PO Box 645

Carson City, Nevada 89702 Tel: 775-882-1366 Fax: 775-883-0524

Web: www.niia.org

Professional Insurance Agents of Nevada

See PIA Western Alliance (under Washington)

Western Insurance Agents Association (WIAA)

See Western Insurance Agents

Association (under California)

State Organizations

New Hampshire

State Associations

Association Headquarters – NAIFA – Mass. & NH

PO Box 500

Hingham, Massachusetts 02043

Tel: 617-266-1919; 800-480-8719 (In state)

Fax: 617-266-6849

Web: www.naifanh.org

New Hampshire Association of Domestic Insurance Companies (NHADIC)

Peerless Insurance Company

62 Maple Avenue

Keene, New Hampshire 03431

Tel: 603-357-9558

Fax: 603-358-4616

Agent Associations

Independent Insurance Agents

Brokers of New Hampshire

125 Airport Road

Concord, New Hampshire 03301 Tel: 603-224-3965

Fax: 603-224-0550

Web: www.iianh.com

New Jersey

State Associations

Insurance Council of New Jersey

820 Bear Tavern Road, Suite 303 Ewing, New Jersey 08628-1021 Tel: 609-882-4400 Fax: 609-538-1849

Web: www.icnj.org

New Jersey Association of Insurance and Financial Advisors (NJAIFA)

1 Distribution Way, Suite 202

I.I.I. Insurance Handbook 179

State Organizations

Monmouth Junction, New Jersey 08852

Tel: 732-422-0748

Fax: 732-422-0842

Web: www.naifanj.com

Agent Associations

Independent Insurance Agents

Brokers of New Jersey Inc.

2211 Whitehorse – Mercerville Road PO Box 3230

Trenton, New Jersey 08619 Tel: 609-587-4333

Fax: 609-587-4515

Web: www.iiabnj.org

Professional Insurance Agents of New Jersey

See PIA (under New York)

New Mexico

State Associations

National Association of Insurance and

Financial Advisors (NAIFA — New Mexico)

7815 Eagle Rock Avenue NE Albuquerque, New Mexico 87122 Tel: 505-797-9007 Fax: 505-797-9007

Web: www.naifa.org

Rocky Mountain Insurance Information Association – NM

See RMIIA of CO, NM, UT and WY (under Colorado)

Agent Associations

Independent Insurance Agents of New Mexico, Inc.

1511 University Boulevard, N.E. Albuquerque, New Mexico 87102 Tel: 505-843-7231; 800-621-3978 Fax: 505-243-3367 Web: www.iianm.org

Professional Insurance

Agents of New Mexico

See PIA Western Alliance

(under Washington)

Western Insurance Agents Association (WIAA)

See Western Insurance Agents

Association (under California)

New York

State Associations

Life Insurance Council of New York, Inc.

551 Fifth Avenue, Floor 29New York, New York 10176-0001 Tel: 212-986-6181 Fax: 212-986-6549

Web: www.licony.org

New York Insurance Association, Inc.

130 Washington AvenueAlbany, New York 12210 Tel: 518-432-4227

Fax: 518-432-4220

Web: www.nyia.org

The New York Alliance Against Insurance Fraud, Inc.

c/o New York Insurance Association, Inc. 130 Washington Avenue Albany, New York 12210

Tel: 518-432-3576

Fax: 518-432-4220

Web: www.fraudny.org

180 I.I.I. Insurance Handbook

NAIFA – New York State

38 Sheridan Avenue

Albany, New York 12210-2714 Tel: 518-462-5567 Fax: 518-462-5569

Web: www.naifanys.org

Agent Associations

Independent Insurance Agents

Brokers of New York, Inc.

5784 Widewaters Parkway, 1st Floor Dewitt, New York 13214

Tel: 800-962-7950; 315-432-9111

Fax: 888-432-0510

Web: www.iiabny.org

Professional Insurance Agents of NY, NJ, CT, NH

25 Chamberlain Street

PO Box 997

Glenmont, New York 12077-0997 Tel: 800-424-4244 Fax: 888-225-6935

Web: www.pia.org

Other Organizations

Excess Line Association of New York

(Stamping Office)

One Exchange Plaza

55 Broadway, 29th Floor

New York, New York 10006-3728 Tel: 646-292-5500 Web: www.elany.org

State Organizations

North Carolina

State Associations

Insurance Federation of North Carolina

3605 Glenwood Avenue, Suite 220 Raleigh, North Carolina 27612 Tel: 919-834-9773 Fax: 919-834-9802

Web: www.insurancefederationnc.com

NAIFA North Carolina

875 Washington Street, S-1

Raleigh, North Carolina 27605-3252

Tel: 919-839-5828

Fax: 919-821-5743

Web: www.ncaifa.org

No Agent Associations Other Organizations

North Carolina Rate Bureau

PO Box 176010

Raleigh, North Carolina 27619-6010

Tel: 919-783-9790

Fax: 919-719-7400

Web: www.ncrb.org

North Dakota

State Associations

Association of North Dakota Insurers (ANDI)

c/o Zuger Kirmis & Smith 316 N. Fifth Street, 6th Floor PO Box 1695

Bismarck, North Dakota 58502-1695

Tel: 701-223-2711

Fax: 701-223-7387

Web: www.zkslaw.com

I.I.I. Insurance Handbook 181

State Organizations

Agent Associations

National Association of Insurance

Financial Advisors of North Dakota (NAIFA—ND)

1811 East Thayer Avenue PO Box 5010

Bismarck, North Dakota 58502 Tel: 701-258-9525

Fax: 701-222-0103

Web: www.naifa-nd.org

Professional Insurance Agents of North Dakota

1211 Memorial Highway, Suite 6 Bismarck, North Dakota 58504 Tel: 701-223-5025 Fax: 701-223-9456

Web: www.piand.com

Ohio

State Associations

Association of Ohio Life Insurance Companies

c/o Bricker & Eckler, LLP100 South 3rd Street Columbus, Ohio 43215 Tel: 614-227-2300 Fax: 614-227-2390

Web: www.aolic.com

The National Association

of Insurance and Financial

Advisors — Ohio

17 South High Street, Suite 200 Columbus, Ohio 43215-3458 Tel: 614-228-4539 Fax: 614-221-1989

Web: www.naifaohio.org

Ohio Insurance Institute

172 East State Street, Suite 201 Columbus, Ohio 43215-4321 Tel: 614-228-1593 Fax: 614-228-1678

Web: www.ohioinsurance.org

Agent Associations

The Independent Insurance Agents Association of Ohio, Inc.

1330 Dublin Road PO Box 758 Columbus, Ohio 43216

Tel: 614-464-3100; 800-282-4424

Fax: 614-486-9797

Web: www.ohiobigi.com

Professional Insurance Agents Association of Ohio, Inc.

600 Cross Pointe Road

Gahanna, Ohio 43230

Tel: 614-552-8000; 800-555-1742

Fax: 614-552-0115

Web: www.ohiopia.com

Oklahoma

State Associations

Association of Oklahoma Life Insurance Companies

c/o Kerr, Irvine, Rhodes & Ables 201 Robert S. Kerr, #600 Oklahoma City, Oklahoma 73102 Tel: 405-272-9221 Fax: 405-236-3121

Web: www.kiralaw.com

NAIFA — Oklahoma

6051 N. Brookline, Suite 124 Oklahoma City, Oklahoma 73112 Tel: 405-810-1989; 800-491-8190 Fax: 405-810-1799 Web: www.okaifa.org

182 I.I.I. Insurance Handbook

Southwestern Insurance Information Service (SIIS)

See Southwestern Insurance Information Service (under Texas)

Agent Associations

Independent Insurance Agents of Oklahoma

PO Box 13490

Oklahoma City, Oklahoma 73113 Tel: 405-840-4426 Fax: 405-840-4450

Web: www.iiaok.com

Oregon

State Associations

NW Insurance Council

(Serving Oregon, Washington and Idaho) 101 Elliott Avenue West, Suite 520 Seattle, Washington 98119 Tel: 206-624-3330

Fax: 206-624-1975

Web: www.nwinsurance.org

NAIFA — Oregon

12690 NW Lorraine Drive Portland, Oregon 97229 Tel: 503-718-0094 Fax: 866-791-3348

Web: www.oraifa.org

Agent Associations

Independent Insurance Agents & Brokers of Oregon

5550 SW Macadam Avenue, Suite 305 Portland, Oregon 97239

Tel: 503-274-4000; 866-774-4226

Fax: 503-274-0062

Web: www.iiabo.org

State Organizations

Professional Insurance Agents of Oregon

See PIA Western Alliance

(under Washington)

Pennsylvania

State Associations

Insurance Federation of Pennsylvania

1600 Market Street, Suite 1520 Philadelphia, Pennsylvania 19103 Tel: 215-665-0500 Fax: 215-665-0540

Web: www.ifpenn.org

NAIFA — Pennsylvania

777 East Park Drive, Suite 300 Harrisburg, Pennsylvania 17111 Tel: 717-234-2523, 800-552-7258 Fax: 717-234-5190 Web: www.naifa-pa.org

Pennsylvania Association of Mutual Insurance Companies (PAMIC)

1017 Mumma Road, Suite 103

Wormleysburg, Pennsylvania 17043

Tel: 717-303-0197

Fax: 717-303-1501

Web: www.pamic.org

Agent Associations

Insurance Agents & Brokers

5050 Ritter Road

PO Box 2023

Mechanicsburg, Pennsylvania 17055

Tel: 717-795-9100

Fax: 717-795-8347

I.I.I. Insurance Handbook 183

State Organizations

Other Organizations

Pennsylvania Surplus Lines Association

180 Sheree Blvd., Suite 3100 Exton, Pennsylvania 19341 Tel: 610-594-1340 or 888-209-3230 (in state only) Fax: 610-594-7623

Web: www.pasla.org

Puerto Rico

No State Associations

Agent Associations

Professional Insurance Agents of Puerto Rico & the Caribbean, Inc.

PO Box 192389

San Juan, Puerto Rico 00919-2389

Tel: 787-792-7849

Fax: 787-792-4745

Rhode Island

No State Associations

Agent Associations

Independent Insurance

Agents of Rhode Island

2400 Post Road

Warwick, Rhode Island 02886 Tel: 401-732-2400 Fax: 401-732-1708

Web: www.iiari.com

NAIFA – RI

1643 Warwick Avenue, PMB 128 Warwick, Rhode Island 02889 Tel: 401-739-2977 Fax: 401-727-0959

Web: www.naifa-ri.org

South Carolina

State Associations

South Carolina Insurance News Service

1301 Gervais Street, Suite 715 Columbia, South Carolina 29201 Tel: 803-252-3455 Fax: 803-779-0189

Web: www.scinsurance.net

The Association of South Carolina Property/Casualty Insurance Companies

c/o State Auto Insurance Companies PO Box 199

Greer, South Carolina 29652 Tel: 864-877-3311 Fax: 864-879-4025

Web: www.stateauto.com

Agent Associations

Independent Insurance Agents

Brokers of South Carolina

PO Box 21000

8800 Gracern Road

Columbia, South Carolina 29221 Tel: 803-731-9460

Fax: 803-772-6425

Web: www.iiabsc.com

South Dakota

State Associations

NAIFA – South Dakota

PO Box 1820

Sioux Falls, South Dakota 57101 Tel: 605-336-3400 Fax: 605-367-8998

Web: www.naifanet.com/southdakota

184 I.I.I. Insurance Handbook

Agent Associations

Independent Insurance Agents of South Dakota (IIASD)

PO Box 327305 Island Drive Fort Pierre, South Dakota 57501 Tel: 605-224-6234 Fax: 605-224-6235

Web: www.iiasd.org

Tennessee

State Associations

NAIFA – Tennessee189 Fairmont Drive Murfreesboro, Tennessee 37129 Tel: 615-904-6013; 888-276-4159

Fax: 615-907-6389

Web: www.tnaifa.org

Agent Associations

Insurors of Tennessee

2500 – 21st Avenue, Suite 200

Nashville, Tennessee 37212

Tel: 615-385-1898; 800-264-1898

Fax: 615-385-9303

Web: www.insurors.org

Professional Insurance Agents of Tennessee, Inc.

504 Autumn Springs Court, Suite A-2 Franklin, Tennessee 37067 Tel: 615-771-1177

Fax: 615-771-3456

Web: www.piatn.com

State Organizations

Texas

State Associations

Association of Fire & Casualty Companies of Texas

PO Box 15

Austin, Texas 78767-0015

Tel: 512-444-9611

Fax: 512-444-0734

Web: www.insurancecouncil.org

Insurance Council of Texas

2801 South Interregional Highway PO Box 15

Austin, Texas 78767-0015

Tel: 512-444-9611

Fax: 512-444-0734

Web: www.insurancecouncil.org

Southwestern Insurance Information Service (SIIS)

8303 North Mopac, Suite B-231 Austin, Texas 78759 Tel: 512-795-8214

Fax: 512-795-2323

Web: www.siisinfo.org

National Association of Insurance and Financial Advisors — Texas

515 Congress Avenue, Suite 1650 Austin, Texas 78701 Tel: 512-716-8800

Fax: 512-476-1932

Web: www.naifa-texas.org

Texas Association of Life & Health Insurers

1001 Congress Avenue, Suite 300 Austin, Texas 78701 Tel: 512-472-6886

Fax: 512-476-2870

Web: www.talhi.com

I.I.I. Insurance Handbook 185

State Organizations

Texas Coalition for Affordable Insurance Solutions

500 West 13th Street

Austin, Texas 78701

Tel: (512) 477-7382

Fax: (512) 477-6240

Web: www.tcais.org

Agent Associations

Independent Insurance Agents of Texas

1115 San Jacinto, Suite 100 (78701)

PO Box 684487

Austin, Texas 78768-4487

Tel: 512-476-6281; 800-880-7428

Fax: 512-469-9512

Web: www.iiat.org

Texas Insurance Professionals,PIA National Affiliate

PO Box 90908

Austin, Texas 78709-0908

Tel: 800-829-9838

Fax: 512-301-0265

Web: www.piatx.org

Other Organizations

Surplus Lines Stamping Office of Texas

805 Las Cimas Parkway, Suite 150 Austin, Texas 78746 Tel: 512-346-3274

Fax: 512-346-3422

Web: www.slsot.org

Texas Surplus Lines Association, Inc.

9020-I Capital of Texas Highway North, Suite 370 Austin, Texas 78759 Tel: 512-343-9058

Fax: 512-343-2896

Web: www.tsla.org

Utah

State Associations

Rocky Mountain Insurance Information Association – UT

See RMIIA of CO, NM, UT and WY (under Colorado)

Agent Associations

The Utah Association of Independent Insurance Agents

4885 South 900 East, Suite 302 Salt Lake City, Utah 84117 Tel: 801-269-1200 Fax: 801-269-1265

Web: www.uaiia.org

Other Organizations

Surplus Line Association of Utah

(Stamping Office)

6711 South 1300 East

Salt Lake City, Utah 84121 Tel: 801-944-0114 Fax: 801-944-0116

Web: www.slaut.org

Vermont

State Associations

National Association of Insurance and

Financial Advisors ( NAIFA – Vermont) 325 Ethan Allen Pkwy

Burlington, Vermont 05401 Tel: 802-660-9639 Fax: 802-862-3466

Web: www.naifanet.com/vermont

186 I.I.I. Insurance Handbook

Vermont Association of Domestic Property & Casualty Insurance Companies

c/o Union Mutual of Vermont Companies 139 State Street

Montpelier, Vermont 05602 Tel: 802-223-5261 Fax: 802-229-5580

Web: www.unionmutual.com

Agent Associations

Vermont Insurance Agents Association, Inc.

PO Box 1387

47½ Court StreetMontpelier, Vermont 05602 Tel: 802-229-5884

Fax: 802-223-0868

Web: www.viaa.org

Virginia

State Associations

NAIFA – Greater Washington D.C.

PO Box 5153

Arlington, Virginia 22205

Tel: 703-532-8778

Fax: 703-940-8393

Web: www.naifa-gwdc.org

Agent Associations

Independent Insurance

Agents of Virginia, Inc.

8600 Mayland Drive Richmond, Virginia 23294

Tel: 804-747-9300 or 800-288-4428

Fax: 804-747-6557

Web: www.iiav.com

State Organizations

Metropolitan Washington Association of Independent Insurance Agents

PO Box 25346

Alexandria, Virginia 22313-5346 Tel: 703-706-5446 Fax: 703-706-5445

Web: www.mwaiia.org

Professional Insurance Agents Association of Virginia & D.C.

8751 Park Central Drive, Suite 140 Richmond, Virginia 23227 Tel: 804-264-2582

Fax: 804-266-1075

Web: www.piavadc.com

NAIFA – Virginia

3108 N. Parham Road, Suite 100A Henrico, Virginia 23294-4415 Tel: 804-747-6020 Fax: 804-965-0823

Web: www.naifanet.com/virginia

Other Organizations

Virginia Surplus Lines Association

c/o Atlantic Specialty Lines, Inc. 9020 Stony Point Parkway, Suite 450 Richmond, Virginia 23235 Tel: 804-320-9500

Fax: 804-320-7280

Washington

State Associations

NW Insurance Council

(Serving Washington, Oregon and Idaho) 101 Elliott Avenue West, Suite 520 Seattle, Washington 98119 Tel: 206-624-3330;

Helpline: 800-664-4942

Fax: 206-624-1975

Web: www.nwinsurance.org

I.I.I. Insurance Handbook 187

State Organizations

Agent Associations

Independent Insurance Agents and Brokers of Washington

15015 Main Street, Suite 205 (98007)

PO Box 6459

Bellevue, Washington 98008 Tel: 425-649-0102 Fax: 425-649-8573

Web: www.wainsurance.org

PIA Western Alliance

Representing the affiliate chapters of Washington/Alaska, Oregon/Idaho, Montana and the Group (AZ, NM, NV and CA)

3205 N.E. 78th Street, Suite 104 Vancouver, Washington 98665 Tel: 888-246-4466 Fax: 888-346-4466

Web: www.piawest.com

Other Organizations

Washington Insurance

Examining Bureau, Inc.

2101 4th Avenue, Suite 300 Seattle, Washington 98121-2329 Tel: 206-217-9432 Fax: 206-217-9329

Web: www.wieb.com

Washington Surveying & Rating Bureau

2101 4th Avenue, Suite 300 Seattle, Washington 98121-2329 Tel: 206-217-9772 Fax: 206-217-9329

Web: www.wsrb.com

Surplus Line Association of Washington

(Stamping Office)

600 University Street, Suite 1710 Seattle, Washington 98101-1129 Tel: 206-682-3409 Fax: 206-623-3326

Web: www.surpluslines.org

West Virginia

State Associations

West Virginia Insurance Federation

PO Box 11887

Charleston, West Virginia 25339 Tel: 304-357-9929 Fax: 304-357-0919

Web: www.wvinsurance.org

Agent Associations

Independent Insurance Agents of West Virginia, Inc.

PO Box 1226 (25324-1226) 179 Summers Street, Suite 321Charleston, West Virginia 25301 Tel: 304-342-2440; 800-274-4298 Fax: 304-344-4492 Web: www.iiawv.org

188 I.I.I. Insurance Handbook

Wisconsin

State Associations

Community Insurance Information Center

700 W. Michigan Street, Suite 360 Milwaukee, Wisconsin 53233-2470 Tel: 414-291-5360 Fax: 414-291-5370

Web: www.insuranceinfo-ciic.org

National Association of Insurance and

Financial Advisors – Wisconsin 2702 International Lane., Suite 207 Madison, Wisconsin 53704 Tel: 608-244-3131

Fax: 608-244-0476

Web: http://wisconsin.naifa.org

Wisconsin Insurance Alliance

44 East Mifflin Street, Suite 901 Madison, Wisconsin 53703-2800 Tel: 608-255-1749 Fax: 608-255-2178

Web: www.wial.org

Agent Associations

Independent Insurance Agents of Wisconsin

725 John Nolen Drive

Madison, Wisconsin 53713

Tel: 608-256-4429; 800-362-7441

Fax: 608-256-0170

Web: www.iiaw.com

Professional Insurance Agents of Wisconsin, Inc.

6401 Odana Road Madison, Wisconsin 53719 Tel: 608-274-8188 Fax: 608-274-8195

Web: www.piaw.org

State Organizations

Wyoming

State Associations

Rocky Mountain Insurance Information Association – WY

See RMIIA of CO, NM, UT and WY (under Colorado)

Agent Associations

Association of Wyoming Insurance Agents

PO Box 799

Sundance, Wyoming 82729-0799 Tel: 307-283-2052 Fax: 775-796-3122

Web: www.awia.com

NAIFA – Wyoming

Hampton Insurance & Financial Services

PO Box 319

Upton, Wyoming 82730

Tel: 307-468-2635

Fax: 307-468-2415

I.I.I. Insurance Handbook 189

Alphabetical Index

Brief

History

YEAR EVENT

1601 First insurance legislation in the United Kingdom was enacted. Modern insurance has its roots in this law which concerned coverage for merchandise and ships.

1666 Great Fire of London demonstrated destructive power of fire in an urban environment, leading entrepreneur Nicholas Barbon to form a business to repair houses damaged by fire.

1684 Participants in the Friendly Society in England formed a mutual insurance company to cover fire losses.

1688 Edward Lloyd’s coffee house, the precursor of Lloyd’s of London, became the central meeting place for ship owners seeking insurance for a voyage.

1696 Hand in Hand Mutual Fire Company was formed. Aviva, the world’s oldest continuously operating insurance company, traces its origins to this company.

1710 Charles Povey formed the Sun, the oldest insurance company in existence which still conducts business in its own name. It is the forerunner of the Royal & Sun Alliance Group.

1735 The Friendly Society, the first insurance company in the United States, was established in Charleston, South Carolina. This mutual insurance company went out of business in 1740.

1752 The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire, the oldest insurance carrier in continuous operation in the United States, was established.

1759 Presbyterian Ministers Fund, the first life insurance company in the United States, was founded.

1762 Equitable Life Assurance Society, the world’s oldest mutual life insurer, was formed in England.

1776 Charleston Insurance Company and the South Carolina Insurance Company, the first two United States marine insurance companies, were formed in South Carolina.

1779 Lloyd’s of London introduced the first uniform ocean marine policy.

1792 Insurance Company of North America, the first stock insurance company in the United States, was established.

1813 Eagle Fire Insurance Company of New York assumed all outstanding risks of the Union Insurance Company, in the first recorded fire reinsurance agreement in the United States.

1849 New York passed the first general insurance law in the United States.

1850 Franklin Health Assurance Company of Massachusetts offered the first accident and health insurance.

1851 New Hampshire created the first formal agency to regulate insurance in the United States.

190 I.I.I. Insurance Handbook

AlphabeticalBriefHistoryIndex

YEAR EVENT

1861 First war-risk insurance policies were issued, written by life insurance companies during the Civil War.

1866 National Board of Fire Underwriters was formed in New York City, marking the beginning of insurance rate standardization.

Hartford Steam Boiler Inspection and Insurance Company, the first boiler insurance company, was established in Hartford, Connecticut.

1873 The Massachusetts Legislature adopted the first standard fire insurance policy.

1878 Fidelity and Casualty Company of New York began providing fidelity and surety bonds.

1885 Liability protection was first offered with the introduction of employers liability policies.

1890 First policies providing benefits for disabilities from specific diseases were offered.

1894 National Board of Fire Underwriters established Underwriters’ Laboratories to investigate and test electrical materials to ensure they meet fire safety standards.

1898 Travelers Insurance Company issued the first automobile insurance policy in the United States.

1899 First pedestrian killed by an automobile, in New York City.

1910 New York passed the first United States workers compensation law. It was later found to be unconstitutional.

1911 Wisconsin enacted the first permanent workers compensation law in the United States.

1912 Lloyd’s of London introduced aviation insurance coverage.

1925 Massachusetts passed the first compulsory automobile insurance legislation.

Connecticut passed the first financial responsibility law for motorists.

1938 Federal Crop Insurance Act created the first federal crop insurance program.

1945 McCarran-Ferguson Act (Public Law 15) was enacted. It provided the insurance industry with a limited exemption to federal antitrust law, assuring the pre-eminence of state regulation of the industry.

1947 New York established the Motor Vehicle Liability Security Fund to cover auto insurance company insolvencies. This organization was a precursor of the state guaranty funds established by insurers in all states to absorb the claims of insolvent insurers.

1950 First package insurance policies for homeowners coverage were introduced.

1960 Boston Plan was established to address insurance availability problems in urban areas in Boston.

1968 First state-run Fair Access to Insurance Requirements (FAIR) Plans were set up to ensure property insurance availability in high-risk areas.

The federal flood insurance program was established with the passage of the National Flood Insurance Act. It enabled property owners in communities that participate in flood reduction programs to purchase insurance against flood losses.

1971 Massachusetts became the first state to establish a true no-fault automobile insurance plan.

1981 Federal Risk Retention Act of 1981 was enacted. The law fostered the growth of risk retention groups and other nontraditional insurance mechanisms.

The Illinois Legislature created the Illinois Insurance Exchange, a cooperative effort of individual brokers and risk bearers operating as a single market, similar to Lloyd’s of London.

1985 Mission Insurance Group failed. The insolvency incurred the largest payout by state guaranty funds for a single property/casualty insurance company failure at that time. This and other insolvencies in the 1980s led to stricter state regulation of insurer solvency.

I.I.I. Insurance Handbook 191

BriefAlphabeHistoryical Index

YEAR EVENT

Montana became the first state to forbid discrimination by sex in the setting of insurance rates.

1992 European Union’s Third Nonlife Insurance Directive became effective, establishing a single European market for insurance.

1996 Florida enacted rules requiring insurers to offer separate deductibles for hurricane losses, marking a shift to hurricane deductibles based on a percentage of loss rather than a set dollar figure. Catastrophe bonds, vehicles for covering disaster risk in the capital markets, were introduced.

1997 World Trade Organization agreement to dismantle barriers to trade in financial services, including insurance, banking and securities, was signed by the United States and some 100 other countries.

1999 Financial Services Modernization Act (Gramm-Leach-Bliley) enacted, allowing insurers, banks and securities firms to affiliate under a financial holding company structure.

2001 Terrorist attacks upon the World Trade Center in New York City and the Pentagon in Washington, D.C. caused about $40 billion in insured losses.

New York became the first state to ban the use of hand-held cell phones while driving.

2002 Terrorism Risk Insurance Act enacted to provide a temporary federal backstop for terrorism insurance losses.

2003 In a landmark ruling, upheld in 2004, the U.S. Supreme Court placed limits on punitive damages, holding in State Farm v. Campbell that punitive damages awards should generally not exceed nine times compensatory awards.

2004 New York Attorney General Eliot Spitzer and a number of state regulators launched investigations into insurance industry sales and accounting practices.

2005 Citigroup sold off its Travelers life insurance unit, following the spin off of its property/casualty business in 2002. This dissolved the arrangement that led to the passage of Gramm-Leach-Bliley in 1999.

The federal Class Action Fairness Act moved most class-action lawsuits to federal courts, offering the prospect of lower defense costs and fewer and less costly verdicts.

A string of hurricanes, including Hurricane Katrina, hit the Gulf Coast, making 2005 the most active hurricane season.

Congress passed legislation extending the Terrorism Risk Insurance Act to December 2007. The act, originally passed in 2002, had been set to expire at the end of 2005. Extended again in 2007.

2006 Massachusetts became the first state to pass a universal health insurance law.

2007 Florida passed legislation shifting more of the cost of paying for hurricane damage from private insurers to the state.

Washington became the first state to ban the practice of texting with a cellphone while driving.

Congress passes legislation extending the Terrorism Risk Insurance Act through the end of 2014.

2008 The Federal Reserve Bank acquired a 79 percent stake in American International Group (AIG) in

exchange for an $85 billion loan, which was subsequently increased and restructured.

Troubled Asset Relief Program established to stabilize the financial sector. Insurers that own a federally regulated bank or thrift were eligible to participate.

2010 Congress enacted an overhaul of the nation’s health care system, expanding access to medical insurance.