HS 311 - Ch 5

Reserves required for property and liability insurers

- Unearned premium reserve - Loss reserve

Regulations of insurers falls into which categories?

- formation and licensing of insurers - supervision of insurer operations - rehabilitation and liquidation of insurers

Unfair trade practices

- rebating - twisting - misappropriation - commingling of funds - misleading advertising

Methods of government regulation

1) legislative action, 2) administrative action, and 3) court action. These correspond to the three main branches of the government."

guaranty fund

A state fund designed to at least partially protect consumers against insurer insolvency. In recent years, all 50 states have adopted insurance guaranty fund plans. Guaranty plans usually assess solvent insurers in order to pay an insolvent company's unpaid claims and to return unearned premiums to its policy owners. Insurers each pay a proportional share of the losses, based on their premium volume in the state.

Misappropriation

An agent's unlawful keeping of funds belonging to others.

Nonadmitted asset

Assets of marginal quality or of little liquidity for policyowners if their insurers should get into financial difficulty. Insurance companies are required to characterize some assets on their Annual Statements as nonadmitted assets.

Insurance Code

Consists of state insurance laws.

legal reserve

In life insurance, an amount that, augmented by premium payments under outstanding contracts and interest earnings, is sufficient to enable the life insurer to meet its expected policy obligations. These include death benefits and nonforfeiture benefits, such as policy loans and surrender values

Unearned premium reserve

In property and liability insurance, the unearned premium reserve must always be adequate to pay a return premium to all policyowners if their policies are canceled prior to expiration.

premium tax

Insurers are also required to pay a premium tax to the state, usually at a rate of about 2 percent of the gross premiums policyowners pay. This premium tax resembles a sales tax on insurance premiums.

use-and-file law

Rates must be filed with the insurance commissioner within a specified time after they are first used. The rates may be disapproved if not in compliance with the law.

Insurance Commissioner

Responsible for application and enforcement of insurance laws. Administrative official found in each state with broad powers. Typically appointed by the governor. Authority extends to licensing insurers and agents; requiring annual reports from the insurers; approving forms and rates in some, but not all, lines of insurance; and investigating complaints of many kinds.

Twisting

Special form of misrepresentation in which an agent may induce the policyowner to cancel the contract of another insurer in order to take out a new contract based on an unfair or incomplete comparison of the contracts.

Rehabilitation

The process of restoring an insurer to financial stability through reorganization. The insurance commissioner acts under the insurance laws as the official in charge of supervising rehabilitation.

rebating

The return of any part of the premium, except in the form of dividends, as a price-cutting sales inducement.

commingling of funds

When an agent mixes the insured's or the insurer's funds with the agent's personal funds.

unauthorized entity

an insurance company (or other organization either real or fictitious) that has not gained approval to place insurance business from a department of insurance in the jurisdiction where it or a producer wants to sell insurance.

Model law

draft bill—the suggested wording of a new law—for consideration by state legislators. Any state may choose to adopt the model bill or adopt it with modifications.

model regulation

draft regulation that may be implemented by a state insurance department if the model law is passed

flex-rating laws

for some lines of insurance. Under these laws, no regulatory approval is needed if a proposed new rate represents a change of less than 5 or 10 percent or some other stated percentage of the existing

"National Conference of Insurance Legislators (NCOIL)

helps legislators make informed decisions on insurance issues that affect their constituents and to declare opposition to federal encroachment of state authority to oversee the business of"

Open competition

relies on competition to set rates, actually represents the absence of government regulation.

Loss reserve

required of property and liability insurers. The loss reserve reflects the insurer's liability for losses that have already occurred but have not yet been paid or otherwise settled.

prior approval law

requires that the proposed rates be filed with the insurance commissioner. The rates may not be used. Remains predominant.

National Association of Insurance Commissioners (NAIC)

voluntary nonprofit association of state insurance administrators. The NAIC itself has no regulatory authority. It is important, however, not only for the zone examination procedures but also for its influence through the commissioners on uniformity of insurance laws in the various states. The NAIC assists state insurance departments by developing model laws and regulations. A model law is a draft bill—the suggested wording of a new law—for consideration by state legislators."

file-and-use law

which permits the immediate use of filed rates without the insurance commissioner's affirmative approval. The commissioner, however, may disapprove the rates within a certain time period such as 30 or 60 days.