Maryland Property & Casualty Insurance Practice Questions

Surplus lines brokers are required to post a surety bond with the Commissioner of insurance in an amount of at least

$10,000.

What is the maximum amount of a deductible on collision coverage for a damage to the insured auto in an auto insurance policy?

$250

Exclusive Agency System

-1 agent represents 1 company -exclusive -Commission on personal sales -renewals can only be placed w/ the appointing insurer

Independent Agency System

-1 independent agent represents several companies -Nonexclusive -commission on personal sales -Business renewal w/ any company

law of agency

-Agent represents the insurer, not the insured -Any knowledge of the agent is presumed to be knowledge of the insurer -if the agent is working within the conditions of their contract, the insurer is fully responsible -when the insured submits payment to the agent, it is the same as submitting payment to the insurer

Managerial System

-Branch Manager -salaried -agents can be insurer's employee or independent contractors

Direct Response Marketing System

-No agents -company advertises directly to consumers -consumers apply directly to company

General Agency System

-agent-entrepreneur represents 1 company -exclusive -Compensation and commissions -appoint subagents

Surety agents must maintain records of all bail bonds executed. These records must be made available for inspection by the Commissioner for at least

1 year after termination of the surety liability.

4 Elements of a Legal Contract

1) Agreement- offer and acceptance 2)Consideration (brings value to both parties) 3)Competent parties 4)Legal purpose

6 Elements of Insurable Risks

1)must be due to chance 2)must be definite and measurable 3)must be predictable 4)cannot be catastrophic 5)loss exposure to be insured must be large 6)must not be mandatory

An insurer or producer may NOT knowingly employ an individual to act in a fiduciary capacity if that individual has been convicted of a felony or crime of moral turpitude within the past

10 years only.

How many continuing education requirements must be met with a two-year period?

24

A broker requests a hearing with the Commissioner. Within how many days of the request must the hearing be held?

30

The Property and Casualty Guaranty Corporation is obligated to pay the full amount of any claim between $100 and $300,000 if the claim occurs within what period of time?

30 days after an insurer has been declared insolvent and before the insurance policy has expired

An insurance producer is required to notify the Commissioner of any felony convictions within how many days of the conviction?

30 days.

Your property policy will be due for renewal soon. When should you expect to receive notice of renewal premium from your insurer?

45

When an insurer desires to cancel or non-renew a property insurance policy, they must give advance written notice of

45 days.

In Maryland, binders are issued for a short period of time. A binder will cease to exist in each of the following situations EXCEPT

60 days following the issue date of the binder.

Which of the following statements is correct regarding a Public Adjuster?

A Public Adjuster does not include a person that appraises claims for loss covered by a motor vehicle policy.

Which of the following would authorize the commingling of premiums with the agent's personal funds?

A letter of consent from the principal

What is a premium finance company?

A premium finance company advances the premiums for clients in a lump sum, and in return, the client pays in monthly installments along with interest.

Which of the following is an example of a producer's fiduciary responsibilities?

A producer promptly forwarding premiums to the insurance company

After a client leaves his office, an agent makes corrections to the client's application, but forgets to tell her. Two weeks later, the client is in an accident. The insurer will be settling the claim based on the corrected form. This is

A violation of the Insurance Code.

Which of the following would be covered by the Property and Casualty Insurance Guaranty Corporation?

An individual claim for $100,000

An insurer in Maryland is going to begin using new rates for the largest corporation in Maryland. Which of the following statements apply to this situation?

Any of the above can be true.

Binders cease at the earliest of

Any of the above.

An agent just received his Maryland Life\Health insurance license. His specialty is selling long-term care policies. In order to satisfy his continuing education requirement, he must do which of the following?

Complete 24 hours of continuing education, including 2 hours of long-term care education, and 3 hours of ethics, every two years.

A business entity must meet all of the following qualifications EXCEPT

Have a board of directors.

Kristin wishes to become an insurance producer in Maryland. In order to do so, she must do all of the following EXCEPT

Have a college education.

Insurance companies in Maryland must submit forms to the Insurance Commissioner in duplicate. What is the one exception to this rule?

If the forms are filed electronically

When a surety insurer terminates the appointment of a surety agent, it must notify the Commissioner and the Chief Clerk of the District Court of Maryland of the termination

Immediately

Which of the following would be considered false advertising?

Implying that the agent is the insurer

Employers Liability limits are split limits. The first limit shown is the most the insurer will pay for all claims for

Injury by accident.

Public adjusters are compensated by

Insureds

Public adjusters represent

Insureds

Which of the following is true regarding a cancellation notice for a workers' compensation policy?

It must include the effective date of cancellation.

Willful violations of insurance laws of this state are considered

Misdemeanors.

During a sales presentation a producer intentionally makes a statement which may mislead the insurance applicant. This describes

Misrepresentation

Collision coverage extends to rented passenger vehicles that have been rented for

No more than 30 days.

All of the following would be considered an insurance transaction EXCEPT

Obtaining an insurance license.

How often must the Commissioner examine domestic insurers?

Once every 5 years

Before a producer can receive authority to place business with MAIF, the producer must comply with the following actions, EXCEPT

Pay a $500 initiation fee

PIP (personal injury protection) provides coverage for injury to the named insured, resident relatives and

Pedestrians struck by the insured vehicle.

All of the following are true regarding rebates EXCEPT

Rebates are allowed if it's in the best interest of the client.

Paul is a producer in Vermont and wants to become a producer in Maryland. The Department will waive certain examination requirements, provided that Vermont would waive these same requirements if a Maryland producer sought licensure in Vermont. What term is used to describe this phenomenon?

Reciprocity

Which of the following would NOT be considered a flood?

Sewer backup

Which of the following authorities can legally suspend a license?

The Insurance Commissioner

If an individual is unable to purchase auto liability insurance from private insurers, which of the following may provide coverage?

The Maryland Auto Insurance Fund (MAIF)

A repair facility used after-market parts in the repair of a customer's automobile, and did not notify the customer of this. Which of the following is true?

The repair facility has engaged in an unfair trade practice.

The Department of Insurance requires a license for anyone engaged in insurance transactions so they can have control over

Those selling insurance or advising the public.

If an insurer charges a different premium rate and limits coverage for an applicant based on partial blindness, the insurer may be found guilty of

Unfair discrimination.

What program must a property and casualty insurer be engaged in to be able to sell flood insurance in Maryland?

WYO

Every vehicle insurance policy issued and delivered in Maryland must provide coverage for medical, hospital and disability benefits, unless

Waived by the first named insured.

Reinsurance

a contract under which one insurance company indemnifies another insurance company for part or all of its liabilities. This is done to protect insurers against catastrophic losses.

Risk Retention Groups (RRG)

a liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry.

Exposure

a unit of measure used to determine rates charged for insurance coverage. (E.g. age of insured, medical history, occupation, gender..etc)

Personal Contract

agreement between insurance company and an individual.

Morale Hazard

an increase in the hazard presented by a risk, arising from the insured's indifference to loss because of the existence of insurance. (E.g "I'm not going to bother fixing this if it brakes. My insurance will pay to replace it.")

agent/producer

an individual licensed to sell, solicit, or negotiate insurance contracts on behalf of the insurer

Admitted Insurers

an insurance company that has qualified and received a Certificate of Authority from the Department of Insurance

Purchasing Groups

any group which main purpose is the purchase of liability insurance on a group basis to cover their similar or related liability exposure. Consists of members whose businesses or activities are similar or related with respect to liability exposure

Express Authority

authority a principal intends to grant to any agent by means of the agent's contract. What is written in the contract.

Implied Authority

authority that is not expressed or written in the contract, but which the agent is assumed to have in order to transact the business of insurance for the producer (e.g. authority to collect and remit premiums)

Hazard

conditions or situations that increase the probability of an insured loss occurring. Classified as physical, moral, and morale

Loss

defined as the reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril. Insurance provides a means to transfer this.

Avoidance

eliminating exposure to a loss (E.g. To avoid the risk of a plane crash, one chooses to never fly.)

Agent/Insurer Relationship

if the agent is working within the conditions of his/her contract, the company is fully responsible

Reduction

includes actions such as installing smoke detectors, having annual physicals, or making changes to lifestyle in a means to lessen probability of loss

Alien Insurer

insurance company incorporated outside of the United States

Non-admitted Insurer

insurance company that has been not applied or has been denied by the Department of Insurance

Foreign Insurer

insurance company that is incorporated in another state or territory. (e.g. A company chartered in California would be a _________ in Maryland)

Domestic Insurer

insurance company that is incorporated in this state. (e.g. An insurance company chartered in Maryland would be a Maryland___________ company )

Surplus Line Carriers

insurance for which there is no readily available admitted market. Such coverages are marketed through nonadmitted insurers who specialize in offering insurance to the high risk market on an unregulated basis under each states laws.

Mutual Companies

insurance organizations that have no capital stock, but are owned by policy holders. Profits are returned to the policy holders as non-taxable dividends, or as reduced premiums. Board of Trustees chosen by policyholders

Homogeneous exposure

larger number of units having similar exposure to loss. sharing risk among members of that group.

Private Insurers

may offer many lines of insurance. they may be formed as stock, mutual, reciprocals or fraternal insurers, and they must be authorized to transact insurance by the state departments

Aleatory Contract

meaning there is no exchange of unequal amounts or values. The premium paid to the insured is small in relation to the amount that will be paid by the insurer in the event of a loss. (E.g. the purchase of a $100,000 life policy, only 2 payments made of $100 each and the person dies unexpectedly. $200 contribution of insured in exchange for $100,000 benefit from insurer still applies. this illustrates________)

Sharing

method of dealing with risk for a group of individual persons or businesses with similar exposure to share the losses incurred within that group

Transfer

most effective way of handling risk. Loss is borne by another party. Does not eliminate the risk but relieves the insured of financial losses brought on by these risks

Unilateral Contract

only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy in force.

ceding insurer

originating company that procures insurance on itself from another insurer

Stock Companies

owned by stockholders who provide the capital necessary to establish and operate the insurance company. In return, these investors share in any profits or losses

Contract of Adhesion

prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). Offered on a "take it or leave it basis" by insurer

Law of Large Numbers

principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss. Statistical basis for which prediction of loss is calculated into rates

Government Insurers

provide insurance in those areas where private insurers either cannot or will not write insurance. Funded by taxes and serve national and state purposes. (Medicare, National flood insurance, Social Security)

Pure Risk

refers to situations that can only result in a loss or no change. No opportunity for financial gain. Only type of risk insurance companies are willing to to accept.

Captive agent

represent only one company and are compensated by commissions

Conditional Contract

requires that certain conditions must be met by the policy owner and the company in order for the contract to be executed, and before each party fulfills its obligation. (E.g. insured must pay premium and provide proof of loss in order for insurer to cover the claim)

Independent agent

sell the insurance products of several different companies and work for themselves or other agents. They own the expirations of the policies. meaning they may place that business w/ another insurer upon renewal if in the best interest of the client

Apparent Authority

the appearance or assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Perils

the causes of loss insured against in a policy.

principal

the insurer, which delegates authority to representatives of the company

Adverse Selection

the insuring of risks that are more prone to losses than the average risk. Companies strive to protect themselves from this and are given the option to to refuse or restrict coverage, or charge a higher rate

Retention (3 Reasons)

the planned assumption of risk by an insured through the use of deductibles, co-payments, or self insurance. 1) to reduce expenses and improve cash flow 2)to increase control of claim reserving and claim settlements 3)Fund for losses that cannot be insured

Insurance Transfers

the risk of loss from an individual or business entity to an insurance company, which in turn spreads the costs of unexpected losses to many individuals

Risk

the uncertainty or chance of a loss occurring

Moral Hazard

those applicants that may lie on an application for insurance, or in the past have submitted fraudulent claims against the insurer

Physical Hazard

those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it

Self-Insurers

when a person or entity, as an alternative to the purchase of insurance from an insurance company, develops a formal program identifying, evaluating, and funding its losses. Frequently used for workers compensation where losses are fairly predictable and states have established regulations for it. Frequently structure their programs to only retain losses up to a certain specified limit and purchase insurance to cover loss above that level (stop-loss coverage)