Member

Cumberland Licensing Corporation

PO Box 7543

Cumberland, RI 02864


P: 401-333-4805
E: clc@cumberlandlicensing.com

Insurance Terminology

Adjuster – A person who investigates claims and recommends settlement options based on estimates of damage and insurance policies held.

 

Admitted or Authorized Company – An insurance company licensed to do business in a state(s), domiciled in an alternative state or country.

 

Affiliate - a person or entity that directly, or indirectly, through one or more other persons or entities, controls, is controlled by or is under common control with the insurer.

 

Agency – A firm, corporation, or one or more individuals acting in association with each other as a single entity. An agency may be a corporation, partnership or sole proprietorship. Also known as business entity.

 

Agent – An individual who sells, services, or negotiates insurance policies either on behalf of a company or independently.

 

Agent, Captive – an individual who sells or services insurance contracts for a specific insurer or fleet of insurers.

 

Agent, Independent – a representative of multiple insurance companies who sells and services policies for records which they own and operate under the American Agency System.

 

Appointment – An agreement between an insurer and a licensee authorizing the licensee to represent the insurer in the sale of its insurance products.

 

Broker – an individual who receives commissions from the sale and service of insurance policies. These individuals work on behalf of the customer and are not restricted to selling policies for a specific company but commissions are paid by the company with which the sale was made.

 

Broker/Dealer – A firm that acts as an intermediary between buyers and sellers of securities for both the general public and other broker/dealer firms.

  

Carrier – An insurance company. See also Insurer.

 

Commission – a percentage of premium paid to agents by insurance companies for the sale of policies.

 

Company Adjuster – An employee of an insurer who adjusts claims on behalf of that insurer for a salary.

  

Continuing Education – Education required in some states to renew the license, unless exempt.

 

Corporation – One or more individuals operating under the articles of incorporation as a single business. Corporations typically have officers and a board of directors.

 

DBA – Doing business as, usually referring to a person or firm doing business under another firm name.

 

Designated Responsible Licensed Producer – An individual in an agency who is responsible for the conduct of all the agency’s licensed members and all transactions of the agency.

 

Domestic Agency or Company – An agency or company formed under the laws of the state in which the insurance is written.

 

Errors & Omissions (E&O) Liability – The liability a producer assumes, by the fact of doing business, for errors or omissions he or she may commit in recommending, providing, continuing, or failing to provide or continue the insurance coverage clients require. Producers can protect themselves by purchasing E&O Liability coverage.

 

Fingerprints – A process of checking an applicant’s fingerprints for possible criminal history as required in some states prior to issuing a license.

 

Financial Institutions – A national bank, state bank or savings association. Credit Unions are generally not considered to be financial institutions.

 

Financial Responsibility – Some states require licensees have a surety bond, errors and omissions liability coverage or some other insurance department-approved financial arrangement in case a client files a legal complaint against the licensee.

 

Foreign Agency or Company – An agency or company organized under the laws of a state other than the one where insurance is written.

 

General Agent (GA) – A person, firm or corporation having authority to supervise, hire and terminate producers for one or more insurers. General agents are paid a commission or fee. Some general agents are given authority to perform other administrative functions normally handled by an insurer such as claim payments, premium billing, verifying coverage and so on. General agents are also authorized to sell, solicit or negotiate insurance.

 

Gramm-Leach-Bliley Act (GLB) – A federal law adopted in 1999 that required states to develop either a reciprocal or uniform approach to nonresident insurance producer licensing by November 12, 2002.

 

Home State – The District of Columbia and any state or territory of the United States in which an insurance producer maintains his or her principal place of residence or principal place of business and is licensed to act as an insurance producer.

 

Independent Adjuster – One who adjusts losses on behalf of companies but is not on their payroll. The independent adjuster is paid by a fee for each loss adjusted, as distinguished from a company adjuster who is paid a regular salary by one company.

 

Insurance Commissioner – Common title for the head of a state department of insurance. In some states, known as the director or superintendent.

 

Insurance Department – A governmental bureau in each state or territory (and federal government in Canada) charged with administration of the insurance laws, including licensing, examination, and regulation of producers and insurers. In some jurisdictions, the department is a division of some other state department or bureau.

 

Insurance Producer – A person required to be licensed under the laws of this state to sell, solicit or negotiate insurance.

 

Insured – The party who purchases insurance from an insurer who agrees to provide benefits or services.

 

Insurer – The party that undertakes the losses or provides benefits or services. Also called the insurance company and sometimes insurance carrier.

 

Letter of Clearance – Usually computer-generated letter stating an individual held a resident license in his or her former home state but has now canceled the license. Letter also states license type and line(s) of insurance for which the individual was licensed. Insurance departments generally require original letter. Letter required for resident applicants who have relocated from one state to another state.

 

Letter of Good Standing – A letter generally issued by the Secretary of State’s office showing an agency is in good standing in the resident state. The letter may also be referred to as certificate of good standing or certificate of existence.

 

Licensee – An individual or business entity that holds a valid license and is appointed by an insurer to solicit, negotiate or procure insurance.

 

Limited Liability Company (LLC) – A type of organization that has characteristics common to both corporations and partnerships. Organization must have two or more members having equal status and where no member is personally liable for the debts of, or claims against the organization.

 

Limited Lines Producer – A person authorized by the insurance commissioner to sell, solicit or negotiate limited lines insurance.

 

Limited Lines License – Usually refers to a license that limits the licensee to selling a particular line of insurance. In some states, this license type has more lenient qualifications than a standard lines license.

 

Managing General Agent (MGA) – A person, firm, association or corporation having authority to supervise, hire and terminate producers for an insurer. MGAs are paid a commission or a fee.  MGAs have more administrative authority than general agents and sell, solicit or negotiate insurance either directly or indirectly. They may also negotiate reinsurance for insurance companies.

  

Mutual Company – An insurance company owned by the policyholders.

 

Name Approval – Official name, assumed name, or trade name of an agency on file and approved by the insurance department as required in some states.

 

NAIC (National Association of Insurance Commissioners) – An association of state insurance commissioners in the 50 states, District of Columbia and four U.S. territories that is organized for the purpose of exchanging information and working toward uniformity of insurance regulation.

 

National Producer Number (NPN) – The NPN is a unique identification assigned by the NIPR that identifies each entity in the State Producer Licensing Database.

 

National Insurance Producer Registry (NIPR) – NIPR is a nonprofit affiliate of the NAIC.  The purpose of NIPR is to work with the states and the NAIC to reengineer, streamline and make more uniform the producer licensing process for the benefit of regulators, the insurance industry and consumers.

 

Nonresident License – A license issued to an individual who is not a resident of that state.

 

Override Commission – A commission paid to an agency or individual for a percent of business produced by its licensees.

 

Partnership – Several individuals acting under a partnership agreement as a single business.  Generally two or more individuals own and operate the business jointly.

Power of Attorney/Service of Process – The written document that allows the insurance commissioner to receive legal complaints filed against a nonresident licensee.

 

Producer Database (PDB) – An electronic database of insurance producers containing license and appointment information. Every state participates in the PDB and reports information to this central repository.

 

Producer Licensing Model Act (PLMA) – A model act adopted by the NAIC to update and standardize many aspects of state producer licensing.

 

Producer Licensing Working Group (PLWG) – NAIC working group charged with creating and monitoring uniform licensing standards and providing guidance to state insurance licensing departments.

 

Public Adjuster – A type of adjuster hired, usually under a contract, by insureds and are charged with protecting their insured-client’s interests.

 

Qualified Licensee – An individual or agency who already holds a license and has met the license requirements in a specific state. A qualified licensee is already appointed to represent a company and wants to be appointed by new or additional insurers.

 

Reciprocal Agreement – A mutual agreement between two states whereby producers of each state can sell insurance in the other state.

 

Reinsurance – Agreement between insurance companies under which one accepts all or part of the risk for the other.

 

Reinsurance Intermediaries – A reinsurance intermediary acts as a broker in soliciting, negotiating or procuring the writing of any reinsurance contract or binder. Reinsurance Intermediaries act as insurance producers in accepting any reinsurance contract or binder on behalf of an insurer.

 

Reinsurers – Insurers that accept all or part of the risk of another insurer.

 

Renewal – Continuation of the license or appointment beyond the original date of expiration. Renewals vary from annually to every four years.

 

Resident License – A license issued to an individual who lives in the state where the license is issued.

 

Retaliatory – Usually pertains to licensing fees. Retaliatory fee is the higher of the home state fee or the nonresident state fee.

 

Revocation – A license that is terminated because the licensee has violated insurance laws or for unethical behavior.

 

Regulatory Information Retrieval System (RIRS) – A database maintained by the NAIC which includes information filed by states to report formal administration actions.

 

Risk Purchasing Groups – Operates under federal law. RPGS are only allowed to place liability coverage. RPGs are purchasing entities, not insurers, formed to pool purchasing power on similar risks and are not generally subject to state insurance laws.

 

Risk Retention Groups – Formed as a result of the Risk Retention Act of 1981, a federal law that enables licensed insurers to form risk retention groups in order to provide group self-insurance. RRGs are fully regulated in one state pursuant to that state’s laws. RRGs are limited to providing non-workers’ compensation.

 

Service Representative License – License issued to an individual employed by and paid a salary by an insurer, managing general agent or general agent. Service Representatives work in the field with licensees to assist them in negotiating, procuring or soliciting insurance.

 

Sole Proprietorship – One individual who owns and operates a business.

  

Sponsoring Insurance Company – The insurer a licensee represents in the sale of insurance products.

 

State of Domicile – State in which insurer or agency was organized and founded.

 

Surety – An insurance or bond that covers obligations to pay the debts of, or default of another, including faithlessness in a position of public or private trust.

 

Surplus Lines Insurance (SLI) – Products are sold by authorized non-admitted companies. SLI companies provide access to products not available in a state.

 

Surplus Lines Broker License – License issued to a person or firm to place risk insurance with eligible surplus lines insurers.

 

Temporary License – A resident applicant may apply for and receive a temporary license in some states prior to meeting the prelicense education and license examination requirement.

 

Termination for Cause – The cancellation of the relationship between an insurance producer and the insurer for one of the reasons listed in Section 12 of the PLMA.

 

Third-Party Administrator (TPA) – An organization or firm that administers self-insured funds or multiple employer trusts.

 

Title Agents – Functions of title insurance agents include conducting title searches, performing underwriting functions, preparing and issuing title insurance commitments and policies, maintaining policy records, and receiving premiums. In addition, many title agents perform real estate closings, and provide settlement and escrow services.

 

Uniform Licensing Standards (ULS) – Set of standards adopted by the Producer Licensing Working Group for the purpose of implementing uniform standards among the states.

 

Viatical or Life Settlement – The owner of a life insurance policy sells the right to receive the death payment to a third-party. Typically the owner insured receives a cash payment and the buyer agrees to make any remaining premium payments on the policy. Sellers of viatical plans are required to show proof of financial responsibility through a surety bond, certificates of deposit or securities.

*Terminology obtained from the National Association of Insurance Commissioners (NAIC) and the Securities and Licensing Association (SILA).