California Insurance Code and Ethics: General California Insurance Law

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

Insurance policy is

A written instrument in which a contract of insurance is set forth.

Managing General Agent (MGA)

An MGA is any person, firm, association, partnership or corporation that negotiates ceding reinsurance contracts on behalf of an insurer or manages the insurance business for that insurer and acts as its agent.

When would the insurer be allowed to use the information obtained through a pretext interview?

In the investigation of a claim suspected as fraudulent

According to the California Law, if an insurer includes a fraudulent claim clause in the contract regarding the legal ramifications of a false claim, the clause must be preceded by which of the following statements?

"For your protection, California Law requires the following to appear on this form."

The maximum penalty for failure to print an individual agent's license number on printed documents is

$1,000 The penalty for failure to print an individual agent's license number on documents is $200 for the first offense, $500 for second offense, and $1,000 for the third or subsequent offenses. The maximum fine for any one offense is $1,000. (CIC 1725.5)

In order for Wild Life of Havana to do business in this state, it must apply for and obtain

A certificate of authority.

De-mutualization happens when

A mutual insurer becomes a stock company.

Bob owns an insurance company. How many names (real or fictitious) may his business have?

2 Any insurance business is allowed two names, real or fictitious. These names must be filed with the Commissioner when they are created or changed.

How many days do insurers have to accept or deny an insurance claim?

40 days

What is reinsurance?

An agreement between a ceding insurer an assuming insurer The originating company that procures insurance on itself in another insurer is called the ceding insurer. The other insurer is called assuming insurer.

A France-based insurer would like to do business in California. What document must it first receive?

Certificate of Authority

What certification must an insurer receive before it can transact insurance in California?

Certificate of Authority All insurers, regardless of the state in which they are chartered, must obtain a Certificate of Authority from the California Insurance Department before they can transact insurance in the state.

What document must an insurer receive in order to transact insurance in this state?

Certificate of authority

A life insurance application is asking if the applicant has applied for any other life insurance within the past 6 months. The applicant states that he applied for $15,000 coverage from XYZ Co., but fails to mention the $150,000 coverage with DEF Co. The applicant is guilty of

Concealment

Factual statements about the insured or the risk in an insurance policy are considered

Express Warranty Warranties can either be expressed or implied. Statements in a policy are considered express warranty. Every express warranty becomes part of the insurance contract. Implied warranty is an unwritten or unspoken guarantee presumed to be made based on the circumstances of a transaction.

An insurer submits a rate plan to the Commissioner's office on the first of the month and immediately implements this new rate plan the next day prior to receiving the Commissioner's approval. This type of rate plan is known as

File and Use File-and-use laws require that the rate plan be filed prior to marketing the plan; however, such laws provide that once the plan is filed, the insurer does not have to wait for Commissioner approval to begin marketing the plan.

Which state law was enacted in California to protect persons age 65 or older from insurance agent dishonesty?

Financial Elder Abuse Statutes California enacted the Financial Elder Abuse statutes in 2002, which, in part, specifically addresses insurance agent abuses of persons age 65 or older.

The insurance solicitor is only found in which field of insurance?

Fire & Casualty An insurance solicitor is a person employed to aid insurance agents and insurance brokers in transacting insurance and is only found in the Fire & Casualty field.

Fraudulent activities in health care are estimated in billions of dollars annually. This results in

Increase in health care costs for everyone. Although there is no exact figure it is believed that fraudulent activities account for billions of dollars annually in added health care cost nationally. This results in a significant increase in health care costs for everyone. (CIC 1871)

Home Service insurance is a variation of which type of life policies?

Industrial Life insurance Home Service insurance is a variation of industrial life insurance that is issued in small face amounts. The demand for these types of plans is very limited.

Which type of life insurance is usually written for small amounts and requires frequent premiums that are collected by the agent?

Industrial life insurance Industrial or home service life insurance is written for small amounts (under $1,000) and premiums are collected each week or month. Industrial life insurance is written as whole life, limited pay life, or endowment. Family members covered by this type of insurance are covered from birth to age 65 or 70.

Any person or governmental entity that provides information about an individual to an agent, insurance company, or insurance-support organization is known as a(n)

Institutional source. According to CIC 791.02, an "institutional source" means any person or governmental entity that provides information about an individual to an agent, insurance company or insurance-support organization.

Which type of insurance includes the assumption of a contractual obligation to reimburse the insured against all or a portion of his fees, costs, and expenses related to or arising out of services performed by or under the supervision of an attorney who is an active member of the bar of any jurisdiction or jurisdictions of the United States?

Legal Insurance Legal insurance includes the assumption of a contractual obligation to reimburse the insured against all or a portion of his fees, costs, and expenses related to or arising out of services performed by or under the supervision of an attorney who is an active member of the bar of any jurisdiction or jurisdictions of the United States, in which these legal services are performed.

According to the California Insurance Code, any agent violating the regulations relating to misrepresentation will be charged with a

Misdemeanor, a fine not to exceed $25,000, and/or a possible 1-year imprisonment. Any agent violating the misrepresentation provisions is guilty of a misdemeanor and punishable by a fine not to exceed $25,000 (for losses less than $10,000), and/or by imprisonment not to exceed 1 year. In addition, the Commissioner may suspend the license of the agent for a maximum period of 3 years.

The rating method which allows insurers to compete with one another by quickly changing rates without review by the state regulators is known as

Open Competition. The open method competition allows insurers to compete with one another by quickly changing rates in order to be more competitive in the market place.

Representations in insurance contracts qualify as

implied warranties

In California, which system is used to approve or disapprove rate filings?

Prior In California, rates are generally subject to prior approval rules, which means they may not be used until approved by the department or until a given time has passed after the filing without having been disapproved.

The Gramm-Leach-Bliley Act was passed to

Protect private customer information filed with a financial institution. The Gramm-Leach-Bliley Act was passed to protect private customer information that is filed with a financial institution. Customers must be given two disclosure notices (one at the onset of business and one before information is disclosed), as well as a yearly updated disclosure notice.

What method do insurers use to protect themselves against catastrophic losses?

Reinsurance Insurers use reinsurance to protect themselves from catastrophic losses. This is a method where the reinsurer indemnifies the ceding insurer for part or all of the losses it sustains related to a policy issued previously.

Under the file-and-use law, an insurer

Submits a rate plan to the Commissioner and immediately begins marketing the plan. The file-and-use law allows an insurer to submit a rate plan to the Commissioner and begin marketing the plan without gaining the Commissioner's approval.

The type of insurance that guarantees the behavior of persons and the performance of contracts other than insurance policies is known as

Surety insurance. Surety insurance includes the guaranteeing of behavior of persons and the guaranteeing of performance of contracts other than insurance policies and other than for payments secured by a mortgage, deed of trust, or other instrument constituting a lien or charge on real estate.

Under the prior approval plan, insurers file proposed policy rate information with

The Department of Insurance.

All of the following statements are true regarding an application by an insurer for a rate change

The application will be deemed approved 60 days after public notice unless a consumer requests a hearing and the Commissioner grants the hearing. The application will be deemed approved 60 days after public notice unless the Commissioner on his or her own motion determines to hold a hearing. The Commissioner will notify the public of any application by an insurer for a rate change. The application will be deemed approved 60 days after public notice unless the proposed rate adjustment exceeds 7% for personal lines or 15% for commercial lines.

If an insured intentionally failed to communicate information related to an implied warranty, which of the following may occur?

The insurer may rescind the contract. According to CIC 338, an intentional and fraudulent omission on the part of one insured to communicate information of matters proving or tending to prove the falsity of a warranty entitles the insurer to rescind.

What does the Commissioner use to decide if a rate for an insurance policy is adequate and fair?

The rate and how it compares to an insurance company's investment income. The Commissioner must consider whether the rate reflects the insurance company's investment income when deciding if a rate is excessive, inadequate or unfairly discriminatory.

Which type of insurance guarantees or indemnifies owners of real or personal property or the holders of liens or other interested parties against loss or damage suffered to said property?

Title Insurance Title insurance includes insuring, guaranteeing or indemnifying owners of real or personal property or the holders of liens or others interested parties against loss or damage suffered to said property.

ABC Insurance has determined that the premiums that it currently charges for its Safe Driver II plan need to be increased. ABC's underwriters have reevaluated the rate plan and sent the new rate schedule to each managing general agent for distribution to its agents. After two weeks of marketing the new plan, ABC filed the new plan with the Commissioner for approval. This method of rate plan marketing is considered

Use and File rate laws. Use-and-file laws require that rate plans be filed within a specified period, generally 15-30 days, after they are first used with the public.