Unit 2 Insurance Regulations

Controlled Business

Coverage written on a producers own life or health and on the lives or health of such persons as producers relatives or business associates

Investigative Consumer Report

A report similar to consumer report, but one that also provides information on the consumer's character, general reputation, personal habits, and mode of living that is obtained through investigation.

Applicants for insurance must be given advance notice including all of the following types of information EXCEPT: A. The person who are collecting information B. The kind of information to be collected C. The sources of information D. The persons with access to personal information

A. Applicants for insurance do not have to be given advance notice of the persons who will be collecting information.

Business is written on the producers own life or interests is known as: A. Controlled business B. Personal business C. Conflicted business D. Producer business

A. Business written on the producers own life or interests is known as controlled business.

Consumer

Anyone about whom a company collects information.

Most insurance regulation takes place at: A. The international level B. The national level C. The state level D. The local level

C. Insurance is state regulated as defined by the McCarron-Ferguson Act.

True or false If the commissioner non-renews or denies an application for a license, the applicant or license he will not be notified of the reason for the denial or non-renewal of the license.

False- The commissioner must notify the licensee or applicant

Gramm-Leach-Bliley Act (GLBA)

Federal law enacted in the United States to control the ways that financial institutions deal with the private information of individuals.

Insurance is regulated by

Federal, state, and self.

False advertising

Formulating an advertisement that is untrue, deceptive, or misleading.

Paul v. Virginia

The transaction of insurance across state lines was not interstate commerce and should be regulated by local law. Held for 75 years.

Boycott, coercion, and intimidation

It is a violation of the act for a person or organization to commit or be involved in an act of boycott, coercion, or intimidation that is intended to create a monopoly or a strict fair trade in the transaction of insurance.

Discrimination

It is illegal to permit discrimination between individuals of the same class or insurance risk in terms of rates, premiums, fees, and policy benefits because of their place of residence, race, creed, or national origin.

Illegal premiums and charges

It is unlawful for a person or ensure to collect premiums or make charges that are not specified in the insurance contract

Statutes

The body of law developed by the legislative branch of government.

Insurance Code

The body of laws at the state level. State regulation consists of statutes, rules, and regulations.

NAIC

Without legal authority the national Association of insurance commissioners is an association of state commissioners, also imposes a strong influence in the area of the industry self-regulation. The NAIC is the organization that has done the most to standardize law between the states. Laws passed by the NAIC include the Individual accident and sickness policy provisions law, standard nonforfeiture and valuation laws, fair trade practices act, unauthorized ensure service of process act, insurance holding company system regulatory act, variable contract law, group life definition and standard provisions bill, and credit life and credit health insurance regulation bill.

Proper market conduct

conducting insurance business fairly and responsibly

state law supplement

contains info on license regulations in your state

McCarren-Ferguson Act

passed by congress in 1945 stating that the federal government had the right to regulate the business of insurance, but only to the extent that such business is not regulated by state law. Main intent was to exempt the insurance industry from most of the provisions of the federal antitrust laws.

What are the organizations that rate the financial strength of insurance carriers On the basis of an analysis of the companies claims experience, investment performance, management, and other factors?

1. A. M. Best Company 2. Weiss Research 3. Standard & Poor's/Duff & Phelps 4. Moody's Investors Service

GLBA requires the company make two primary disclosures to customers:

1. At the time of the establishment of the customer relationship 2. Before the company discloses protected information.

The Department of Insurance has the right to:

1. Compute the reserve liabilities of a company, to value its assets, and to approve or disapprove its investments, dividends, and expenses. 2. Require a company to deposit securities to cover its liabilities in the state.

Misrepresentations include but are not limited to:

1. Misrepresenting the benefits, advantages, or terms of a policy 2. Misrepresenting policy dividends by implying or stating that they are guaranteed 3. Misrepresenting the financial condition of an insurer by means of an in accurate or incomplete financial comparison 4. Misrepresenting an insurance policy by using a name or title that is untrue or misleading or by indicating that an insurance policy represent shares of stock.

When may a temporary agent license be issued for up to 180 days?

1. The surviving spouse or court appointed personal representative of a licensed producer who dies or becomes disabled in order to maintain the producers business 2. A member of a business entity license as an insurance producer, upon the death or disability of an individual designated in the business entity application or the license 3. The designee of a licensed insurance producer entering active service in the Armed Forces of the United States. * A temporary license may not continue after the licensee disposes of the business.

How many days does an appointing insurer have to file a notice of appointment when a producer is to function as an agent of the insurer?

15 days * loss of an appointment does not necessarily mean that the producer has lost his license. It simply means that the producer may no longer represent that particular company, although he is still licensed within the state.

How many days does a non-resident producer who moves from one state to another state or a resident producer who moves to another state must file a change of address and provide certification from the new residence state?

30 days. No fee or license application is required.

A consent order

A disciplinary action in which the party at fault (the insurance company or agent) agrees to discontinue a particular practice (usually an unfair trade or claims practice) through a written agreement with the department of insurance.

Which of the following individuals would NOT be exempt from a producer licensing requirement? A. Alicia works in an insurance office conferring directly with or offering advice to prospective purchasers about the benefits, terms, and conditions of insurance policies and urges a person to apply for policies Alicia thinks would be a good match. B. Brenda works for and ensure acting in the capacity of a special agent or agency supervisor assisting insurance producers by providing technical advice and assistance to licensed insurance producers on non-sales related areas. C. Connie gathers information for the purpose of enrolling individuals under a group life insurance plan at her company. Connie also issues certificates and assistance in administering the plan. D. Darwin specs, rates, and classifies risks. At times, Dell also supervises the training of insurance producers.

A. Alicia would not be exempt from a producer licensing requirements

The head of the state department of insurance (usually called the commissioner) is responsible for all the following except: A. Examining individual insurance policies before issuance B. Administering and enforcing state insurance laws C. Imposing penalties for violations of the insurance code D. Issuing insurance licenses and certificates of authority

A. The commissioner is not responsible for examining individual policies prior to issue.

Under the financial privacy safeguards of the Gramm Leach Bliley act, an individual with whom a financial institution has an ongoing relationship is: A. A customer B. A consumer C. A Client D. A patron

A. Under the financial privacy safeguards of the Gramm Leach Bliley Act, an individual with whom a financial institution has an ongoing relationship is a customer.

Producers may function as agents or brokers.

Agents represent their insurance company, and brokers represent their clients.

Pretext Interview

An interview whereby a person, in an attempt to obtain information about another person, pretends to be someone else, misrepresents the true purpose of the interview, or refuses to properly identify himself.

Which of the following is considered an unfair claims practice? A. Splitting a commission with a prospect B. Failing to affirm or deny coverage within a reasonable time after proof of loss C. Convincing a policy owner to lapse or surrender an existing policy to sell another policy D. Making any oral or written statement that is false, maliciously critical, or calculated to injure a competing producer

B. Failing to affirm or deny coverage within a reasonable time after proof of loss is considered an unfair claims practice.

Under the financial privacy safeguards of the Gramm Leach Bliley Act, an individual about whom a financial institution collects information is: A. A customer B. A consumer C. A Client D. A patron

B. Under the financial privacy safeguards of the Gramm Leach Bliley Act, an individual about whom a financial institution collects information is a consumer.

A person licensed as an insurance producer in another state who moves to this state has how many days after establishing legal residence to become a resident licensee without taking pre-licensing education or an examination? A. 30 B. 60 C. 90 D. 120

C. A person licensed as an insurance producer in another state who moves to the state has 90 days after establishing legal residence to become a resident licensee without taking pre-licensing education or an examination.

Non-financial regulatory activities of an insurance department fall under the broad heading of: A. Market regulation B. Conduct regulation C. Market conduct D. Insurance conduct

C. Non-financial regulatory activities of an insurance department fall under the broad heading of market conduct.

Producers may act as: A. Agents representing the insurance company B. Brokers representing the individual seeking insurance C. Either agents representing the insurance company or brokers representing the individual seeking insurance D. Neither agents representing the insurance company nor Brokers representing the individual seeking insurance

C. Producers me at either as agents representing the insurance company or as Brokers representing the individual seeking insurance.

The commissioner of insurance has all of the following powers EXCEPT: A. Conducting investigations and examinations B. Making reasonable rules and regulations C. Promulgating insurance law D. Approving insurance policy forms sold within the state

C. The commissioner of insurance does not have the power to promulgate insurance laws.

The federal government: A. Is the primary authority for regulating the business of insurance B. Does not get involved in regulating the business of insurance C. Has the right to regulate the business of insurance to the extent that such business is not regulated by state law D. Is prohibited by executive order from regulating any aspect of the insurance business

C. The federal government has the right to regulate the business of insurance to the extent that such business is not regulated by state law.

The non-financial regulatory activities of an insurance department fall under the broad heading of: A. Company conduct B. Regulatory conduct C. Market conduct D. Producer conduct

C. The non-financial regulatory activities of an insurance department fall under the broad heading of market conduct.

Discrimination

Charging a different rate for individuals of the same class and life expectancy.

Illegal Premiums and Charges

Collecting additional charges from the insured that are not specified in the contract

To opt-out

Consumers and customers decision to not allow a company to share their information it has about them.

Associations organized to protect claimants, policyholders, and annuitants, and creditors of financially impaired insurers are known as: A. Insurance associations B. Department associations C. Liability associations D. Guaranty associations

D. Associations organized to protect claimants, policyholders, and annuitants, and creditors of financially impaired insurers are known as or guaranty associations.

Pretext interviews are: A. Always illegal B. Not permitted without a warrant sworn by a sitting judge C. Generally excepted practice in the industry D. Not permitted unless some evidence of criminal activity exists

D. Pretext interviews are not permitted unless some evidence of criminal activity exists.

Which of the following people would be required in most states to obtain an insurance license? A. Rachel, a salaried employee of a large department store chain, who councils her employer on insurance related matters B. Adam, who works in an advertising agency, supervising the advertising business of a major Insurer C. Henry, who works as an underwriter for a small insurer D. Sarah, who sells insurance to businesses only

D. Sarah would be required to obtain an insurance license in most states.

Under the statutes of most states no person is permitted to act as an insurance producer without being currently licensed as a producer for the class or classes of insurance involved acting as a producer include selling soliciting are negotiating insurance

License Required

Misrepresentation

Making a false or misleading statement regarding the benefits, advantages, or terms of a policy.

Commissioner, Superintendent, or Director of Insurance

The public official that heads the department of insurance.

Unfair claims practices

There are two reasons why claims settlements practices are regulated in the public interest: for the purpose of settling claims that insurance companies have collected policy owners money the unfair claim practices provisions are designed to protect insured's and claimants from any claims settlement practices that are unfair,Deceptive, or misleading.

The unfair trade practices act

This act has two parts, unfair marketing practices and unfair claims practices

Most insurance regulation takes place at

state level.

Boycott, Coercion, and Intimidation

Using threat or force to create a monopoly or restrict fair trade in the transaction of insurance.

Exemptions to license requirements

People who are not paid commissions for selling insurance do not need a license.

True or false: it is unfair trade practice for any person to formulate or use an advertisement or make a statement that is untrue, deceptive, or misleading regarding an insurer or person associated with an insurer.

True

The SEC and the state Insurance Department regulate:

Variable contracts

Persons engaging in the business of insurance whose activities affect interstate commerce are prohibited by federal law from knowingly (and with the intent to deceive):

1. making any false material statement or report that overvalues any land, property, or security. 2. making any false entry of material fact in any book, report, or statement of such person engaged in the business of insurance with intent to deceive an officer, employee, or agent engaged in the business of insurance regarding the financial condition or solvency of such business. 3. willfully embezzling, abstracting, purloining , or misappropriating any of the monies, funds, premiums, credits, or other property of any person engaged in the business of insurance. 4. corruptly influencing, obstructing, or impeding the due and proper administration of the law under which any preceding is pending before any insurance regulatory official, agency, producer, examiner. *punishment includes fines, imprisonments, or both.

How many days does a licensee have to give the head of the department of insurance written notice of any change of business address?

30 days

A person licensed as an insurance producer in one state who moves to another state has how many days after establishing legal residence to become a resident licensee?

90 days

The department of insurance has the authority to assume control over company funds and management if:

An insurer becomes impaired or is in financial difficulty the department will attempt to put the insurer back in sound financial standing.

Termination of Appointment

An insurer may terminate any of its appointed producers at any time. The insurer must give prompt written notice of the termination and the date to the Department of insurance (and to the producer when reasonably possible) and must file a statement of facts related to the termination and reasons for it. If the appointment was terminated because the producer was found to have done some thing that would be grounds for revocation, denial, or suspension of his license, the insurer is obligated to notify the commissioner, generally within 30 days.

Defamation

An unfair trade practices for any person or company to make oral or written statements or to circulate literature that is false, maliciously critical, or derogatory to the financial condition of any ensure or that is calculated to injure anyone engaged in the business of insurance.

All of the following are powers and duties of the Commissioner, Superintendent, or Director of Insurance EXCEPT: A. Issue a certificate of authority B. Make insurance laws C. Examine books, records, and documents of an insurer, agent, or broker D. Approve insurance policy forms sold within a state.

B

A customer is anyone: A. About whom a company collects information B. With whom a company has an ongoing relationship C. Who prohibits the sharing of non-public personal information D. Who permits the sharing of non-public personal information

B. A customer is anyone with whom a company has an ongoing relationship.

Which of the following individuals is least likely to be granted a temporary license? A. Georgia, whose insurance producer her husband passed away unexpectedly, leaving her with a business to either learn or sell B. Kim, who wants to try selling insurance on a temporary basis before investing the time and money into being licensed C. Dave, an employee of a business entity, when the individual designated as the licensee and the business entity is disabled in an auto accident and unable to return to work for several months D. Leigh, whose insurance producer fiancé was recalled to active duty by the Navy and appointed Lee her designee

B. Kim is least likely to be granted a temporary license.

Churning

Similar to twisting, turning is the practice of using misrepresentation to induce replacement of a policy issued by the ensure the producer is representing, rather than the policy of a competitor. The purpose behind turning is to allow the producer to collect a large first year commission on a new policy which results of the producer putting his interest above those of a client.

Misrepresentations

Simply a lie. It is a violation of unfair marketing practices for any person to make, issue, or circulate any illustration, sales material, or statement that is false, misleading, or deceptive.

A cease and desist order issued by the commissioner

If the department of insurance finds that any person or ensure is engaged in any unfair trade or unfair claims practices a cease and desist order will prohibit the individual or company from continuing the practice. Fines in a loss of license maybe impose for a company or person guilty of violating the unfair trade practices at act

Insurance laws generally are written by: A. The federal government B. The state legislature C. The state department of insurance D. The commissioner

B. Insurance laws generally are written by the state legislature

Unfair claim practices include:

1. Misrepresenting pertinent facts or insurance policy provisions relating to coverage at issue 2. Failing to acknowledge and act promptly upon communications with respect to claims arising under insurance policies 3. Failing to adopt an implement reasonable standards for the prompt investigation of claims 4. Refusing to play claims without conducting a reasonable investigation based on all available information 5. Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed 6. Not attempting in good faith to effectuate prompt, fair, and equitable statements of claims in which liability has become reasonably clear 7. Compelling insured's to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such and insureds 8. Attempting to settle the claim for less than the amount to which are reasonable person would have believed he was entitled by reference to written or principal advertising material accompanying or made part of an application 9. Attempting to settle claims on the basis of an application that was altered without notice, knowledge, or consent of the insured 10. Making claims payments to insured's or beneficiaries not accompanied by statements setting forth the coverage under which the payments are being made 11. Making known to insured's are claimants a policy of appealing arbitration awards in favor of insured's or claimants for the purpose of compelling them to except settlements or compromises less than the amount awarded in arbitration 12. Delaying the investigation or payment of a claim by requiring an insured, claimant, or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information 13. Failing to promptly settle claims where liability has become reasonably clear under one portion of the insurance policy coverage to influence settlement under other portions of the insurance policy coverage 14. Failing to promptly provide a reasonable explanation of the basis relied on an insurance policy in relation to the fax or applicable law for denial of a claim or for the offer of a compromise settlement *Some states have added another provision that makes it an unfair claim practice to offer a settlement or payment in any manner prohibited by law.

Reasons why the commissioner may place a licensee on probation, suspend, revoke, or refuse to issue or renew an insurance producers license or may levy a civil penalty are as follows:

1. Providing incorrect, misleading, incomplete, or materially untrue information and the license application 2. Violating insurance laws regulation subpoena or order of the commissioner or of another state commissioner 3. Attempting to obtain a license through misrepresentation or fraud 4. Improperly withholding, misappropriating, or converting money or property received in the course of doing insurance business 5. Intentionally misrepresenting the terms of an actual or proposed insurance contract or application for insurance 6. Having been convicted of a felony 7. Admitted or have been found to have committed insurance unfair trade practices or fraud 8. Using fraudulent, coercive, or dishonest practices or demonstrating incompetence, on trustworthiness, or financial irresponsibility in the conduct of business in the state or elsewhere 9. Having an insurance producer license or it's equivalent denied, suspended, or revoked in any other state, providence, district, or territory 10. forging another's name to an application for insurance or to any document related to an insurance transaction 11. Improperly using notes or any other reference material to complete an examination for an insurance license 12. Knowingly excepting insurance business from an individual who is not licensed 13. Failing to comply with an administrative or court order imposing child support obligations 14. Feeling to pay state income tax or comply with an administrative or court order directing payment of state income tax.

An organization that establishes model laws that are often adopted by states with only slight differences is: A. The National Association of Insurance Companies B. The National Association of Independent Commissioners C. The National Association of Insurance Consultants D. The National Association of Insurance Commissioners

D. The National Association of Insurance Commissioner's establishes model laws that are often adopted by states with only slight differences.

It is a producer's responsibility to disclose that the applicants information is obtained from various sources regarding the applications insurability.

Disclosure Authorization

Buyer's Guide

Document providing basic information about insurance policies.

Twisting

Inducing an insured to lapse, forfeit, or surrender a policy based on misrepresentations or making an incomplete comparison of another policy from a different company.

Notice to Applicant

Informs the applicant that a report will be ordered concerning their past credit history and any other life or health insurance for which they have previously applied.

Policy Summary is for : Outline of Coverage is for:

Life insurance Health insurance Both are a statement describing the elements of the policy being sold. And must include: agents name, address, name and office address of the insurer, the generic name of the policy, and each rider.

Defamation

Making an oral or written statement that is false, malicious, or derogatory to the financial condition of any insurer and is done with the intent to do harm.

False Financial Statements

Making false statements regarding the solvency of an insurer with the intent to deceive.

Fine for obtaining consumer information under false pretenses is:

Maximum of $5,000, imprisonment for one year, or both.

Twisting

Occurs when a producer convinces a policy owner two laps or surrender a present policy in order to sell him another one, usually from a different company.

Rebating

Offering any inducement in the sale of insurance that is not specified in the contract such as commission splitting.

State Guaranty Association

Organized to protect claimants, policyholders, annuitants, and creditors of financially impaired or insolvent insurers by providing funds for the payment of claims and other related policy benefits.

South-Eastern Underwriters Decision

Overturned Paul v. Virginia and stated that insurance transacted across state lines was, in fact, interstate commerce.

Rebating

Rebating is any inducement in the sale of insurance that is not specified in the insurance contract. And offered to share commissions with the insurance applicant is an inducement and the sale of insurance that is not part of the insurance policy, and thus, constitutes rebating.

Churing

Replacing a policy repeatedly with the same company allowing the producer to collect continuous first year commissions.

What information does the insurance license contain?

The licensees name, address, personal identification number, date of issuance, lines of authority, expiration date, and any other information the commissioner deems necessary.

The insurance producer licensing exam is a written examination that must be passed by resident individuals applying for an insurance license to test the knowledge of the individual concerning what?

The lines of authority for which the application is made, the duties and responsibilities of an insurance producer, and the insurance laws and regulations of the state.

Non-resident producer licensing

The majority of states allow for reciprocity in non-resident licensing. reciprocity means a mutual exchange of privileges. In the case of producer licensing, it means the recognition of two states of the validity of licenses or privileges granted by the other.

The state Insurance Code prescribes the procedures that must be followed for an insurance company to be formed. It specifies:

The manner in which the company must be organized, the requirements for incorporation, and the amounts for minimum capital and surplus.

Rules & Regulations

developed by the Department of Insurance to expand upon statutory requirements and legislative intent.

why insurance is regulated

To protect the public interest and to make sure coverage is available on an equitable basis. Also because of the large amounts of money involved in the industry. Misuses impact consumers and even the economy.

Most states require insurers to keep a permanent advertising file of all advertisements used until the next regular examination by the Department of Insurance or a minimum of

Two-three years