Property and Casualty - Chapter 5 - Texas Statutes and Rules Common to All Lines

Maintenance and Duration

- Must be renewed every 2 years - Can be reinstated within a short period of time after lapse - Continuing education - must be completed every reporting period

Agent Regulation (3)

1. Only one license of the same type is allowed per agent 2. Must be licensed in the line of authority for which the agent transacts insurance 3. Avoid unfair trade practices

Licensing Process

1. Pass examination 2. Submit application and fees

On a participating insurance policy issued by a mutual insurance company, dividends paid to policyholders are AGuaranteed. BNot taxable since the IRS treats them as a return of a portion of the premium paid. CPaid at a fixed rate every year. DTaxable as ordinary income.

B With participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are nontaxable because they are considered a return of excess premiums.

Participating policies

Policy owners are entitled to dividends, which, in the case of mutual companies, are a return of excess premiums and are, therefore, nontaxable Dividends are NOT guaranteed

Nonparticipating policies

Policy owners do not share in profits or losses; does not pay dividends to policy owners; however, taxable dividends are paid to stockholders *stock companies usually issue these*

Commissioner of Insurance (4)

1. Appointed by the Governor for 2 years 2. Regulates the internal affairs of the Department of Insurance 3. Does NOT write laws 4. Examines all authorized insurers

Types of Licenses (2)

1. Individuals: resident and nonresident 2. Temporary license - valid for 90 days; issued to maintain the existing business

Which of the following is NOT a licensing requirement for a corporation in the state of Texas? A The business must be able to pay up to $50,000 in the event that it is proven to be negligent. B The business must demonstrate financial responsibility to provide coverage for an error or omission. C The business must be a Texas corporation, with its principal place of business in Texas. D At least one officer of the corporation must be individually licensed as an agent.

A All of the above criteria are true, with the exception of the amount of money a business can afford to lose, in the event that it is proven to be negligent. A business only needs to be able to pay $25,000.

An insurance company has published a brochure that inaccurately portrays the advantages of a particular insurance policy. What is this an example of? AUnfair claims BTwisting CDefamation DFalse advertising

D False advertising is the illegal practice of advertising or circulating materials that are untrue, deceptive, or misleading.

Foreign Insurer

an insurance company that is incorporated in another state, the District of Columbia, or a territorial possession. Currently, the United States has 5 major U.S. territories: American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.

Domestic Insurer

an insurance company that is incorporated in this state.

Alien Insurer

an insurance company that is incorporated outside the United States.

Mutual companies

owned by the policyowners and issue participating policies

Stock companies

owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses Normally issue nonparticipating policies

What is a domicile?

refers to the location where an insurer is incorporated, not necessarily where the insurer conducts business.

All of the following are unfair claims settlement practices EXCEPT A Suggesting negotiations in settling the claim. B Refusing to pay claims without conducting a reasonable investigation. C Failing to adopt and implement reasonable standards for settling claims. D Failing to acknowledge pertinent communication pertaining to a claim.

A When settling claims, negotiation can come into play.

An insured purchased an insurance policy 5 years ago. Last year, she received a dividend check from the insurance company that was not taxable. This year, she did not receive a check from the insurer. From what type of insurer did the insured purchase the policy? A Reciprocal B Nonprofit service organization C Stock D Mutual

D Funds not paid out after paying claims and other operating costs are returned to the policyowners in the form of a dividend. If all funds are paid out, no dividends are paid.

The Insurance Commissioner may examine the affairs of any insurer as often as necessary, but not less frequently than once every AYear. B2 years. C3 years. D5 years.

D The Insurance Commissioner must examine each insurer at least once every 5 years.

Company Regulation (4)

1. Certificate of Authority 2. Domestic/foreign/alien - location of incorporation 3. Ownership: stock or mutual 4. Avoid unfair trade practice or unfair claims settlements

Which of the following is an example of a producer being involved in an unfair trade practice of rebating? AInducing the insured to drop a policy in favor of another one when it is not in the insured's best interest BCharging a client a higher premium for the same policy as another client in the same insuring class CMaking deceptive statements about a competitor DTelling a client that his first premium will be waived if he purchases the insurance policy today

D Rebating is defined as offering any inducement in the sale of insurance products that is not specified in the policy, including money, reductions in commissions, promises, and personal services. Both the offer and acceptance of a rebate are illegal.

Which of the following will NOT be considered unfair discrimination by insurers? A Assigning different risk classifications to applicants based on gender identity B Discriminating in benefits and coverages based on the insured's habits and lifestyle C Charging applicants with similar health histories different premiums based on their ethnicity D Cancelling individual coverage based on the insured's marital status

B Discriminating between individuals of the same class with equal life expectancies, or by reason of race, nationality, or ethnic group would be considered unfair discrimination. Insurers are also not allowed to cancel individual coverage due to a change in marital status. Discriminating in benefits based on the insured's habits and lifestyle (such as smoking or dangerous hobbies) is acceptable.

The Commissioner of Insurance issues a Cease and Desist Order to an agent. If the agent wishes to contest the charges in court, how many days after the order was issued does the agent have to make the request? A 10 days B 30 days C 60 days D 90 days

B If the recipient of a Cease and Desist Order wants to contest or review the charges in court, the request must be made within 30 days of the order.

An insurer must acknowledge receipt of a Notice of Claim within how many days? A5 B15 C20 D30

B Under state Claims Methods and Practices laws, every insurer, upon receiving a notification of a claim must acknowledge its receipt and begin an investigation within 15 working days.

Disciplinary actions (3)

1. Suspension, revocation or refusal to renew license 2. Cease and desist order 3. Monetary penalties

An agent explains the details of a life insurance policy to a client. The agent does not realize, however, that the state has recently rewritten two of the provisions. As a result, the agent inadvertently misrepresents the policy, making it more attractive than it really is. What best describes this situation? A There is no misconduct B Fraud C Misrepresentation D Deceptive claim settlement practice

A Although the agent misrepresented the insurance policy, in order to be charged with conducting a deceptive claim settlement, the agent would have had to misrepresent knowingly and/or chronically.

Within how many years must an agent renew an insurance license? A1 B2 C3 D4

B An agent's license must be renewed every 2 years on their birthday in either even or odd numbered years depending on when the license was issued. As long as the renewal requirements are met, the license will continue in effect until refused, revoked or suspended by the Commissioner.

All of the following would be considered an insurance transaction EXCEPT ANegotiating coverage. BObtaining an insurance license. CSoliciting a policy. DAdvising a policyholder regarding a claim.

B An insurance transaction means the carrying on of business in insurance, which could include the solicitation of a policy, advising, negotiation, or inducement related to coverage or claims. Obtaining an insurance license is a prerequisite to transacting insurance.

It would be considered unfair discrimination to ask an insurance applicant about which of the following and then use that information as a rating factor to determine insurability? AAddress BSexual orientation CAge DGender

B It would be considered unfair discrimination to ask an applicant for their sexual orientation, as well as using sexual orientation as a rating factor to determine insurability.

All of the following are considered unfair or deceptive acts in connection with the sale of insurance EXCEPT A Lacking standards for the investigation of an insured's claims. B Attempting to settle a claim in which liability is clear. C Stating facts or provisions in a way that misrepresents the true nature of the policy. D Delaying a settlement because there is other insurance that will satisfy any portion of the loss.

B Misrepresenting the nature of a policy, delaying a settlement solely because there is a another policy that may pay part of the loss, and lacking standards for the investigation of an insured's claim are considered unfair or deceptive acts.

Who might receive dividends from a mutual insurer? AStockholders BAgents CPolicyholders DSubscribers

C A mutual insurer has no stock, and is owned by the policyholders. Since they may receive a dividend (not guaranteed), such policies are known as participating policies. Dividends received by policyholders of a mutual insurer are not taxable.

A temporary license holder can receive a commission from a sale made to all of the following EXCEPT A An accountant at a rival insurance company. B The license holder's family doctor. C The license holder's sister-in-law. D The license holder's spouse's best friend.

C A temporary license holder sale to a family member or an individual the temporary license holder has an employment or business relationship with will not pay commission.

Which of the following is NOT a possible penalty for a violation of the Insurance Code? A Payment of restitution B A cease and desist order C A fine up to $100,000 D An administrative penalty

C In addition to the suspension or revocation of a license, the Commissioner may impose any of all of the following penalties: issue a cease and desist order; order the payment of an administrative penalty; and order the licensee to make restitution. The penalty for a violation may not exceed $25,000.

Insurers must obtain a ________________ prior to transacting business in this state.

Certificate of Authority