Chapter #2 - Insurance Regulation

coercion

the practice of persuading someone to do something by using force or threats

what is the main role of the insurance commissioner, director or superintendent and the insurance department?

to enforce state laws and regulations which are intended to promote the welfare of the general public and protect the public's interest. They do not write insurance!

guaranty plans

to pay covered losses of insolvent insurers. there are limits for any one loss, except for workers comp those are paid in full. This funded through assessments made of those admitted insurers that are writing the covered lines of insurance in the state.

Should an agent or adjuster have a change of address the obligation to notify the insurance department lies with:

C. The person who holds the license is responsible to report the change of address to the Insurance Department.

Although their liability is clear, BB&S insurance company routinely delays all claim payments for 90 days, and in doing so,

C. This is an unfair claims practice. Most states have enacted laws or regulations that specify the time lines for the investigation and either payment or denial of claims.

Once an insurer is approved it is issued what to operate in the state?

Certificate of authority

Agencies that are independent contractors contract with several different companies to represent and sell for those companies. An agent who represents more than one company is known as an independent agent.

Independent Agency System

what is twisting?

Is the unethical act of persuading a policyowner to drop a policy solely for the purpose of selling another policy without regard to possible disadvantage to the policyowner. involves some kind of misrepresentation by the agent to convince the policyowner to switch insurance policies/companies.

Unfair Claim Settlement Practices

a company and/or agent must act in good faith in claim settlements and promptly pay its obligation to the insured in the event of a covered loss. No person may commit or perform with such frequency as to indicate a general business practice

unfair discrimination

a person cannot be given a different rate for coverage than a person in identical circumstances. they may not discriminate because of race, religion, type of job, where they live, or financial status.

How are insurer's rates filed with the state?

it's based on loss ratios of the various classes of risks

What are the four basic distribution systems used to market insurance?

1. Exclusive Agency System 2. Direct Write System 3. Direct Response System 4. Independent Agency System

what is the oldest form of rating known as?

"Judgement Rating"

All of the following events are considered acts of terrorism, except:

A. Acts of riot and civil commotion are not covered under this Act. These perils are covered under most property insurance contracts.

An insurance company that is formed and domiciled under the laws of a particular state is an example of?

A. An insurance company domiciled in a state and is licensed in that state under a certificate of authority is called a domestic insurer.

None of the following can be covered by the federal terrorism act insurance program, except:

A. The act does not apply to federal crop insurance, personal insurance policies or life and health policies.

The unethical act of persuading a policyowner to drop a policy solely for the purpose of selling another policy is known as?

A. Twisting is a violation of insurance laws. Making unfair or inaccurate comparisons to induce a person to drop their current coverage is an unfair trade practice.

The insurance Department has been advised that an agent is guilty of an insurance code violation. The commissioner will:

A. Usually the Insurance Commissioner will first call for a hearing to review all sides of the alleged infraction.

A company approved to do busines in a given state is known as a ______________ company

Admitted company, and is considered to be authorized.

An Insurance company formed under the laws of a country other than the US, its districts, territories, commonwealths, possessions and the panama canal zone. EX: Canada Life and Manufacturers Life

Alien Insurer

An insurer that refuses to pay claims without conducting a reasonable investigation based upon all available information is guilty of:

B. Conducting a prompt, reasonable and thorough investigation is a requirement. If not conducted in this manner it is considered a violation of the unfair claim practices.

All of the following are considered acts of rebating, except:

B. Greeting cards do not constitute a form of rebating. They are not something of commercial value.

The insurer that distributes a statement that misrepresents the benefits, advantages, conditions, or terms of any insurance policy would be guilty of:

B. Obviously, misrepresentation and false advertising is a violation and is considered an unfair trade practice act

The federal law enacted to control the ways financial institutions and insurance companies deal with the private information of individuals is:

B. The Gramm-Leach-Bliley Act (GLB Act), also known as the Financial Modernization Act of 1999, is a federal law enacted in the United States to control the ways that financial institutions (including insurance companies) deal with the private information of individuals.

The responsibility of the federal government in regulating the insurance industry is limited to:

B. The federal government regulates in certain other areas as opposed to state regulation

An incorporated insurance company owned by its policyholders is:

C. A mutual insurer is owned by its policyholders

An incorporated insurance company with its capital divided into shares is the definition of:

C. A stock company is owned by its stockholders.

who has the responsibility to regulate the insurance industry?

C. Both the federal and state governments regulate insurance. In most cases the responsibility rests with the individual states to regulate insurance matters. The federal government regulates in the areas of fair labor standards and anti-trust matters as well as the Fair Credit Reporting Act

In order to be certified as an act of terrorism under the federal terrorism act, property and casualty losses must exceed how much money for any one event?

D. $5,000,000 in damages is the threshold for the Act to apply.

Which of the following would be considered an unfair trade practice?

D. All these are considered to be a violation of the unfair trade practices law.

Which of the following would be considered unfair or deceptive acts by an adjuster?

D. All these are considered to be unfair claim practices.

Which of the following is NOT considered to be an unfair claims practice?

D. Declining to pay a claim that is not covered is not considered to be an unfair claims practice act. However, not responding promptly in the claim investigation is a violation.

No act will be certified by the secretary as an act of terrorism under the federal terrorism act if

D. Life insurance losses are not covered by the Act.

An act of terrorism must be "certified" to be such an act by:

D. The Secretary of the Treasury in concurrence with the Secretary of State and the Attorney General of the United States certify an act of terrorism.

IN ADDITION TO ANY ADMINISTRATIVE ACTION, A PERSON WHO VIOLATES THE FEDERAL FRAUD AND FALSE STATEMENTS REGULATION WILL BE SUBJECT TO A CIVIL PENALTY OF UP TO:

D. The United States Attorney General may bring a civil action in the appropriate United States district court against any person who engages in conduct constituting an offense under the Insurance Fraud and False Statements Section of the United States Code and the person will be subject to a civil penalty of not more than $50,000 or the amount of compensation which the person received or offered for the prohibited conduct, whichever amount is greater.

Which of the following is a requirement for obtaining an agent's or adjuster's license?

D. The applicant for a license must be trustworthy. If that person has been found guilty of a felony, it would normally prevent the person from being licensed in most states.

The federal government sometimes provides insurance that is not ordinarily available from private insurers. Which of the following is provided by the federal governments?

D. The federal government provides all these types of coverage.

under the extension of the terrorism risk insurance act the federal government will share in the losses for a certified act of terrorism if:

D. The federal government shares in certified act of terrorism losses if the program trigger requirements are met. The total losses for all insurers for the event have exceeded $100 million; the insurer has met its 20% deductible for existing claims and the total certified act of terrorism losses for the program year have not exceeded $100 billion.

There are no agents and these companies sell through direct mail or over the phone.

Direct Response System

Insurance company's agents are actually employees. They may receive a salary, be paid a commission, or a combination of both.

Direct Writer System

An insurance company formed and domiciled under the laws of a particular state:

Domestic Insurer

insurance company contracts with agencies, which are independent businesses, to represent and sell insurance only for that insurance company

Exclusive Agency system

what are the 3 types of authority?

Express - specifically given to the agent either in writing or orally. Implied - Allows the agent to perform all the usual tasks required to sell and service the insurance contracts and to exercise the agent's express authority. Apparent - This is a doctrine that assumes that the agent has the authority that a normal prudent person would think or be led to believe the agent has. An example would the apparent authority to bind insurance coverage.

FAIR

Fair Access to Insurance Requirements. no application can be rejected simply because of environmental hazards that are beyond the control of the insures. property must be inspected first.

The responsibility to regulate the insurance industry is shared jointly by who?

Federal and State Government

An Insurance company formed under the laws of the united states of a particular state of the US

Foreign Insurer

an incorporated society or order, without capital stock, that is operated on the lodge system and conducted solely for the benefit of its members and their beneficiaries, and not for profit,.

Fraternal Benefit Society

An incorporated insurance company without permanent stock. Owned by their Policy Holders

Mutual Company

The authority, granted to state government, was granted through the passage of?

Public Law 15, also known as McCarren-Ferguson Act

Associations that agree to share risk equally among it's members. Ex: Lloyd's of London. Risk is placed among its members.

Reciprocal Insurance Exchange

This product allows product manufacturers to establish group self-insurance programs or group captive insurance companies, called risk retention groups, to protect them against product liability exposures and to purchase liability insurance on a group basis through purchasing groups. They are prohibited from writing workers comp and personal lines insurance and are exempt from participating in the state guaranty fund

Risk Retention and Purchasing Groups

With this option, part or all the risk of loss is borne without the benefit of insurance coverage to fall back on if loss occurs.

Self-Insurance

an incorporated insurance company with its capital divided into shares. Owned by their stockholders

Stock Company

Who regulates and enforces the criteria under which an insurance company can do business in an individual state?

The Insurance Department

Who can issue cease and desist orders?

The insurance commissioner - they can suspend, revoke, or fine the offender depending on the nature of the offense and/or if the act was intentional

What is Surplus Line Companies?

They write coverage on types of risks that other insurers will not write. These agents collect a premium tax on all business written through surplus lines companies which is remitted to the state. They do not file rates and forms and do not participate in the state guaranty funds that pay covered losses of insolvent insurers. EX: Lloyds of London.

Fiduciary

defined as a person or institution that has responsibility for the money, property, or financial affairs of another.

Defamation:

is any false or malicious communication, written or oral, that injures another's reputation, fame or character.

what is rebating?

occurs if the buyer of an insurance policy receives any part of the agent's commission or anything of significant value as an inducement to purchase a policy. State regulations are very strict in this respect and are designed to prohibit discrimination in favor of, or against, policyowners. Rebating is illegal.

Gramm-Leach-Bliley Act

requires financial institutions to ensure the security and confidentiality of customer data

What is the McCarren-Ferguson Act?

reserved for Federal Gov't, the authority to regulate insurance in areas such as fair labor standards and anti-trust matters. All other insurnace regulation is reserved to the states.

What does an agent's responsibility or authority include?

selling insurance, collecting premiums, servicing the contract, issuing, countersigning, and delivering policies

Excessive Charges

when an agent charges an extra fee, this charge amounts to an overcharge of premium constituting unfair discrimination against the insured charged. The agent will be charged for engaging in an unfair trade practice and subject to the appropriate penalties of law governing that activity.