CH 5 Flash Cards

To whom may a certificate of authority be issued?

To an insurer authorized to transact business in this state

who is considered a nonresident agent?

An agent who resides and is licensed in another state, but who is authorized to transact insurance in this state

If an insurer meets the state's financial requirements and is approved to transact business in the state, it is considered what type of insurer?

Authorized or admitted

Who can usually be granted a temporary license?

Producer's spouse or designee in case the licensed producer dies or becomes disabled

what are the most common penalties for violations of insurance statutes?

a cease and desist order, a fine, and license suspension or revocation

What type of licensee represents the insured?

broker

the requirement that producers must account for all insurance funds collected and not commingle those funds with their own is known as: a- premium accountability b- fiscal responsibility c-accepted accounting principal d- fiduciary responsibility

d- money collected with respect to an insurance transaction must be held in a position of trust by the producer or broker

For what reason can a temporary license be issued?

For continuation of business in case the license producer dies or becomes disabled

what is controlled business?

Insurance on the producer's own life or property, or the lives or property of the producer's family or business associates

Who owns stock companies?

Stockholders

who is responsible for the contents of insurance advertisements ?

The insurance company

who must be a member of insurance guaranty associations?

all insurers authorized to write insurance within a state

if an insurer holds a certificate of authority it is known as what type of insurer?

authorized or admitted

in insurance producers are permitted to share or split commissions, providing that a- there is a written agreement between the producers b- both are properly licensed for the line of insurance c- the insured knowns and agrees to the arrangement d- the insurance department knowns of the arrangement

b- for a producer to receive commissions from the sale of insurance, they must be properly licensed for that line of insurance

a license has met licensing qualifications for life, health, property, and casualty insurance. how many separate licenses will the department of insurance issue? a- 3 b- 4 c- 1 d- 2

c- an insurance producer may receive a single license that includes all of the lines of authority for which requirements have been met

If a producer makes maliciously critical statements about another insurer, what is this illegal practice called?

defamation

In general, who can be excluded from producer licensing and examination requirements?

insurance company officers, directors, or any other employees who do not transact insurance and who do not receive commission for their service (usually their responsibilities include administrative, executive or clerical)

in the agent/ insurer relationship, who is considered the principal?

insurer

What illegal act does a producer commit when the producer represents a policy in a more favorable light than the policy really is?

misrepresentation

on its advertisement, a company claims that it has funds in its possession that are, in fact, not available for the payment of losses of claims. what is the company guilty of?

misrepresentation

Can insurers advertise the existence of the guaranty association during solicitation and sale of insurance policies?

no, advertising of the existence of the guaranty association for the purpose of solicitation and sale of insurance policies by insurers is an illegal business practice

what is the purpose of a cease and desist order?

To prevent a producer or insurer from further violating laws for transacting insurance

When is controlled business legal?

When the commissions from controlled business do not exceed the aggregated commissions on all the other business (specific limits may vary from state to state)

two individuals who are in the same risk and age class are charged different rates for their insurance policies due to an insignificant factor. what Is this called?

discrimination

Who may share in the commission from the sale of a life insurance policy?

only producers properly licensed for the type of insurance transaction

an agent offers a client free tickets to a sporting event in exchange for the purchase of an insurance policy. what is the agent guilty of?

rebating

What type of licensee represents the insurance company?

the agent

Who must be notified of a producer's change of address?

the department of insurance (commissioner/ director/ superintendent )

Who is responsible for the costs associated with the examination of insurers?

the insurer who is being exained

what document is required for an insurance company to transact insurance?

Certificate of Authority

If the Commissioner/Superintendent finds a licensee engaging in an unfair method of competition or an unfair practice, what order will be issued?

cease and desist order

what are producers required to do in order to renew their license?

complete continuing education house and pay a renewal fee

what is the purpose of insurance guaranty association?

to protect policyowners, insureds and beneficiaries from financial loss caused by insolvent insurers

a person was found guilty of an unfair trade practiced of defamation. what is the maximum monetary penalty the person may have to pay? a-$ 5,000 b- $10,000 c- $500 d- $1,000

c- any person in violation of the provision of defamation is guilty of a misdemeanor and will be punished by a fine up to 500 or by imprisonment in the county jail up to 1 year of both

forcing a client to buy insurance from a particular lender as a condition or granting a loan is defined as: a-rebating b- misleading advertising c- defamation d- coercion

d- these are all considered to be unfair trade practices which are major violations that can lead to heavy penalties. coercion for example is when the bank wont give you an auto loan unless you agree to buy auto insurance from them.

which of the following is an example of a producer being involved in an unfair trade practice of rebating? a- telling a client that his first premium will be waived if he purchases the insurance policy today b- inducing the insured to drop a policy in favor of another one when it is not in the insured's best interest c- charging a client a higher premium for the same policy as another client in the same insuring class d- making deceptive statements about a competitor

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

if the commissioner believes that an unauthorized person is engaging in the business of insurance in violation of the provisions of the insurance code, creating an immediate danger to the public safety the commissioner may: a- issue an emergency cease and desist order b- publish a warning in an official newspaper circulated in Colorado c- notify the national association of insurance commissioners d- order an immediate hearing to be conducted

a- the commissioner may issue an emergency cease and desist order if he believes that an unauthorized person is engaging in the business of insurance in violation of the provisions of the insurance code and if it alleged conducts is fraudulent, creates an immediate danger to the public safety or is causing or can be reasonable expected to cause significant imminent and irreparable publics injury

after a client signs a disclosure statement regarding additional fees charged by a producer the producer must keep a copy of the statement for at least: a- 3years from the date of completion of service b- 5 years from the date of the statement is signed c- 90 days from the date the statement is signed d- 1 year from the date of completion of the services

a- the producer must retain a copy of the disclosure statement for at least 3 years after the completion of the services. A copy must be made available to the commissioner upon request.

a man desperately wants to become an insurance agent, but cannot pass the Colorado exam. his cousin offers to take the test under the mans name and passes. three months after the license is issue that gets discovered. what will the commissioners action be? a- the commissioner can issue a license for the cousin b- there is nothing the commissioner can do c- the commissioner can revoke the license d- the commissioner must wait until the licenses renewal date to suspend the license

c- the commissioner may suspend or revoke a license if he or she discovers a person obtained or attempted to obtain a license through misrepresentation or fraud.

Insurers are classified according to their domicile. What are the three types of insurers?

domestic, foreign, and alien

an insurance producer just sold an insurance policy to his sister. what kind of business is this? a- controlled b- illegal c- internal d- personal

a- when producers sell polices on themselves, their family or their coworkers, this is called controlled business. controlled business is legal as long as premiums paid on these polices do not exceed the premiums that the producer writes for other business.

all insurance companies doing business in the state of Colorado must file a financial statement with the commissioner: a- annually on or before January 1st b- semiannually January 1st and July 1st each year c- quarterly d- annually on or before march 1st

d- all insurance companies doing business in this state will make and file with commissioner a financial statement annually on or before March 1st

a friend helped an insurance producer sell an insurance policy. the producer can share they commission with the friend if: a- the friend is also a blood relative b- the commissioner gives the producer verbal permission to share c- the producer applies for a shared commission form for that fiscal year d- the friends licensed in the same line of insurance

d- insurance producers are allowed to share or split commissions only if both parties are properly licensed for that line of insurance

if a government agency in this state files an administrative action against an insurance licensee the report of the action of the commissioner must include all of the following EXCEPT: a- other relevant documents of the complaint or hearing b- the producers production record for the prior year c- a copy of the initial complaint d- the order resulting from the hearing

b- the report to the commissioner must include a copy of the initial complaint the order resulting from the hearing and any other relevant document

When can the Commissioner or Director examine insurers?

whenever deemed necessary, but at least once every few years (please check your state regulations for specific time requirements)

which of the following is NOT a penalty for violating provisions of the insurance Code? a- license revocation b- payment of a contractual obligation c- imprisonment d- monetary fine

c- in addition to suspension of an insurance producer license any person who violates any provision of the insurance code may be subject to a civil penalty (monetary fine) or an order to pay for contractual obligations (for example when the violation caused the failure to pay the claim)

an insurance application cannot ask about which of the following information about an applicant? a- gender b- address c- sexual orientation d- age

c- 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

when the commissioner believes that a person has engaged in an unfair method of competition or an unfair trade practice before issuing a cease and desist order, the commissioner must: a- contract the state governor b- subpoena witnesses c- revoke the persons license d- hold a hearing

d- if the commissioner suspect that an insurer or its agents has committed a violation or is engaged in an unfair trade practice, the commissioner may issue a statement of chargers and hold a hearing for any purpose deemed necessary

which of the following best describes the unfair trade practice of defamation? a- assuming the name and identity of another person b- issuing false advertising material c- refusing to deal with other insurers d- making derogatory oral statements about another insurers financial condition

d- making oral or written statements directly or indirectly which are derogatory or maliciously critical of another insurer would be an example of the unfair trade practice of defamation

a person was found guilty of an unfair trade practice of defamation. what is the maximum monetary penalty the person may have to pay? a-$5,000 b-$10,000 c-$500 d-$1,000

c- any person in violation of the provision on defamation is guilty of a misdemeanor and will be punished by a fine up to 500 or by imprisonment in the country jail up to 1 year or both

if the commissioner believes a producer has committed a violation of an insurance law, the commissioner will hold a hearing, what is the purpose of the hearing? a- to deliver a cease and desist order to the violator b- to officially revoke the producers license c- to allow the aggravated party to be heard d- to allow the public to participate in the disciplinary procedure

c- if the commissioner receives any information regarding the possible violation, the violating person will be required to appear and show cause why the commissioner should not discontinue revoke suspend or refuse to issues or renew the persons license

which of the following is a producers fiduciary duty? a- signing an application b- selling insurance c- making a commission d- handling premiums

d- a fiduciary is someone whom the client has placed financial trust in. Producers have the fiduciary duty to handle clients premiums and insurers unearned refunds in a trusted manner. This money must not mingle with producers personal funds but instead be kept in a fiduciary capacity

an agent offers his client free tickets to a sporting event in exchange for the purchase of an insurance policy. the agent is guilty of: a- rebating b- coercion c-twisting d-controlled business

a- when producers give or promise anything of value that is not specified in the policy, they are guilty of rebating.

noncompliance with the regulation regarding fees charged by producers may result in which of the following penalties? a- a fine up to $25,000 per violation b- imprisonment c- requiring the producer to complete continuing education on ethics d- fines and license suspension or revocation

d- noncompliance may result after proper notice and hearing in any of the sanctions made available by Colorado statues. these sanctions include the imprisonment of fines and or suspension/revocation of the producers license

what is the maximum civil penalty per violation if an unauthorized entity violate the commissioners cease and desist order? a-$ 1,000 b- $5,000 c- $10,000 d- $25,000

d- the commissioner may take the following actions against an authorized insurer that violated a cease and desist order: impose a civil penalty of $25,000 per violation, or direct the entity to make complete restitution to all parties affected by the violation or both.

the mixing or premiums belonging to the insurer or the insured with the producers personal funds not related to the business is called: a- commingling b- fraud c- rebating d- controlled business

a- the mixing of premiums belonging to the insurer or the insured with the producers personal funds not related to the business is called commingling

Believing a producer has violated provisions of the insurance Code, the commissioner will schedule a hearing a- to revoke the producers license b- to prevent the producer from further violation of the law c- to present the producer with the charges in person d- to allow the producer to show why penalties should not be assessed

d- once the commissioner has reasonable groups to believe that a person has violated insurance laws, the commissioner must conduct a hearing to allow the person to defend themselves. Upon failure of the person to redeem their actions, the commissioner may impose fines or suspend or revoke the persons license

an insurer publishes intermediating brochures that portray the insurers competition as financially and professionally unstable. Which of the following best describes this act? a- legal, provided that the other insurers are paid royalties for the usage of their names. b- illegal under any circumstances c- legal, provided that the information can be verified d- illegal until endorsed by the Guaranty Association

b- when a company criticizes the financial situation of another company with the intention of injuring the company, it has committed an illegal trade practice called defamation.

which of the following terms describes making false statements about the financial condition of any insurer that are intended to injure any person engaged in the business of insurance? a- defamation b- undercutting c- twisting d- slandering

a- defamation is making statements that are false as the financial condition of any insurer and which are calculated to injure any person engaged in the business of insurance

What type of misrepresentation persuades an insured, to his or her detriment, to cancel, lapse, or switch policies from one to another?

twisting

who is an insurance agent?

A person authorized to sell, solicit and negotiate insurance contracts

every insurer in the state of Colorado is required to prepare implement and maintain an insurance antifraud plan. In addition a summary of the company's antifraud efforts must be submitted to the commissioner on: a- a monthly basis b- a biennial basis c- a quarterly basis d- an annual basis

d- every license company doing business in this state must include as part of its annual report, a summary of its anti-fraud efforts

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 coverage based on the insureds habits and lifestyles c- charging applicants with similar health histories different premiums based on ethnicity d- cancelling individual coverage based on the insureds material 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 insureds habits and lifestyles (such as smoke or dangerous hobbies) is acceptable.