Section 16 quiz questions

Which one of the following objectives of insurance regulation is critical because of the legal requirement for individuals and businesses to have auto insurance? Select one: A. Ensuring availability of coverage B. Specifying policy language for coverages C. Ensuring that insurers follow fair claim handling practices D. Regulating insurance rates

A. Ensuring availability of coverage

Insurance regulators may try to restrict rate increases at the top of the underwriting cycle. Such actions often have the effect of Select one: A. Exacerbating the underwriting cycle. B. Broadening policy terms. C. Decreasing deductibles. D. Increasing competition.

A. Exacerbating the underwriting cycle.

The McCarran-Ferguson Act in the U.S. exempts insurers from part of the U.S. Sherman Anti-Trust Act. As a result, advisory organizations can collect data from numerous insurers. The most direct benefit of this is Select one: A. Increased credibility of combined experience. B. Increased protection against insurer insolvency. C. Increased equity in pricing among insureds. D. Increased competition.

A. Increased credibility of combined experience.

Which one of the following is true about risk-based capital? Select one: A. It is based on an insurer's size and risk profile. B. The insurer's asset size is the primary determinant. C. It is not flexible in its application. D. It is not used by regulators.

A. It is based on an insurer's size and risk profile.

The goal of regulating insurance rates is aimed at ensuring that Select one: A. Rates are adequate, not excessive, and not unfairly discriminatory. B. All insureds in a specified territory pay the same rates. C. Insurance rates are consistent for individuals and entities throughout the United States. D. Rates for a given type of business meet the minimum requirements specified for each state.

A. Rates are adequate, not excessive, and not unfairly discriminatory.

Insurance policy regulation starts with legislative bodies. Which one of the following is one of the four areas of legislative policy regulation? Select one: A. Readability standards B. Market conduct C. Rebate enforcement D. Rate regulation

A. Readability standards

A large task facing insurers is keeping current on new regulations or changes in regulations. Which one of the following statements is true regarding insurers staying in compliance with regulatory changes? Select one: A. Regulators publish nonemergency rules before their effective dates. B. All regulations affecting insurance originate in insurance departments. C. It is unlawful for insurers to rely on service providers for the latest regulatory information. D. Insurance departments are prohibited from posting current regulatory information online.

A. Regulators publish nonemergency rules before their effective dates.

Which one of the following describes a process that analyzes the rulings from several legal authorities to create a new case law that is applied to a new legal situation? Select one: A. Synthesis B. Precedent C. Stare decisis D. Legislation

A. Synthesis

Since passage of the McCarran-Ferguson Act of 1945, federal laws have governed insurance only in prescribed circumstances. Which one of the following is one of these circumstances? Select one: A. When a state has no law that regulates an aspect of the business of insurance covered by a federal law B. When bank-related firms sell insurance on the same basis as insurance producers C. When national banks underwrite insurance D. When a state's laws are administered unfairly and unreasonably to the detriment of the public

A. When a state has no law that regulates an aspect of the business of insurance covered by a federal law

Insurers should not be allowed to earn excessive or unreasonable profits because excessive rates Select one: A. Are not adequate. B. Can lead to affordability problems. C. Are not neutral. D. Are unfairly discriminatory.

B. Can lead to affordability problems.

Which one of the following is the best example of a coverage with a government-mandated rate? Select one: A. Private passenger auto liability B. Flood C. Private passenger auto liability in the residual market D. Commercial general liability

B. Flood

Research concerning the insurance rating approaches of noncompetitive rating (NCR) and competitive rating (CR) has found Select one: A. NCR requirements eliminate delay in obtaining rate relief. B. Little evidence that excessive pricing occurs in the absence of an NCR law. C. Conclusive evidence that NCR jurisdictions have lower loss ratios than CR jurisdictions. D. Little evidence that NCR laws tend to narrow the range of prices.

B. Little evidence that excessive pricing occurs in the absence of an NCR law.

The most accurate definition of a rate is Select one: A. A charge for insurance which is not inadequate, excessive, and unfairly discriminatory. B. The price per exposure unit for insurance coverage. C. An estimate of the expected value of future costs of an insurance coverage. D. The total of all actual costs of a risk transfer.

B. The price per exposure unit for insurance coverage.

Which one of the follow best explains how regulators determine which insurers to closely review? Select one: A. A high insurer employee turnover triggers a close review from the regulator. B. Regulators closely review all insurers on a rotating basis. C. A market analysis is performed and those insurers that have activity outside the normal standards may be given a closer review. D. A claim brought by a consumer against an insurer triggers a close review from the regulator.

C. A market analysis is performed and those insurers that have activity outside the normal standards may be given a closer review.

Regulators protect insurance consumers from which one of the following producers' behaviors? Select one: A. A producer may advise a client not to purchase insurance, but to self-insure using its other investment products. B. A producer may require its insureds to call the insurer's claim office directly to report all claims. C. A producer may misrepresent the nature of protection offered by the policy to make a sale. D. A producer may refuse to use software that is endorsed and installed by an insurer the agent represents.

C. A producer may misrepresent the nature of protection offered by the policy to make a sale.

Day-to-day regulation of insurance falls upon Select one: A. State governments. B. Legislative bodies. C. Administrative agencies. D. Courts.

C. Administrative agencies.

Given the following two statements about the effect of insurance on economies: I. The property-casualty insurance industry affects economies by increasing the sales of goods and services. II. The property-casualty insurance industry affects economies by providing sources of investment funds and taxes. Select one: A. Statement I is true; statement II is not true. B. Neither statement I nor II are true. C. Both statements I and II are true. D. Statement I is not true; statement II is true.

C. Both statements I and II are true.

Which one of the following statements is most true? Select one: A. Rate changes must be supported by actuarial analyses. B. Prior approval regulation prompts equitable rates for all insureds. C. Deemer provisions promote prompt action by regulators in states with prior-approval laws. D. The type of rate regulation varies by state, but is consistent for all lines within a state.

C. Deemer provisions promote prompt action by regulators in states with prior-approval laws.

The Canadian Constitution Select one: A. Prohibits provincial legislatures from enacting legislation. B. Establishes federal responsibility for managing financial institutions. C. Empowers the federal (national) Parliament and provincial legislatures to enact legislation. D. Prohibits national banks from underwriting insurance.

C. Empowers the federal (national) Parliament and provincial legislatures to enact legislation.

A state insurance department is concerned about how fast auto liability coverage costs have been rising. The department wishes to limit future increases in rates. The least burdensome form of regulation to achieve this goal is Select one: A. Open competition. B. Use and file. C. Flex rating. D. Prior approval.

C. Flex rating.

Which one of the following is a type of administrative agency rule that describes the meaning of statutes to provide guidance for agency staff or regulated parties? Select one: A. Procedural rule B. Legislative rule C. Interpretative rule D. Substantive rule

C. Interpretative rule

The most valid criticism of schedule rating is that Select one: A. It is not based on characteristics of individual risks. B. It is based on historical, not projected, experience. C. It can be based on subjective criteria. D. It allows variance from standard class rates.

C. It can be based on subjective criteria.

A state insurance department is concerned about how expensive auto liability coverage has become in its state. The form of regulation that would best enable the insurance department to control the rates charged consumers is Select one: A. Use and file. B. Flex rating. C. Prior approval. D. Open competition.

C. Prior approval.

Which one of the following is a benefit insurance provides to individuals, families, businesses, and society as a whole? Select one: A. Increasing social burdens B. Eliminating uncertainty about potential future losses C. Providing support for credit D. Eliminating the need for loss control activities

C. Providing support for credit

In pricing insurance, insurers must be fair and consistent, resulting in similar rates for insureds with loss exposures that are roughly similar regarding expected losses and expenses. This describes which one of the following rate regulation standards? Select one: A. Rates should not be excessive. B. Rates should be adequate. C. Rates should not be unfairly discriminatory. D. Rates should be compliant.

C. Rates should not be unfairly discriminatory.

Which one of the following rating mechanisms would produce a rate that most closely matches the insured's actual loss experience under an insurance policy? Select one: A. Schedule rating B. Classification rating C. Retrospective rating D. Experience rating

C. Retrospective rating

Which one of the following statements is true regarding rate regulation in insurance? Select one: A. Review of the amount of an insurer's investment income has become less important in the evaluation of an insurer's rates. B. Prior-approval rate filings typically require a simple filing with limited actuarial analysis if a proposed rate change is within a specified range. C. The reasonableness of the level of profit associated with a rate is a consideration. D. Rates must be based only on past costs because future costs are unknowable.

C. The reasonableness of the level of profit associated with a rate is a consideration.

The insurance industry's primary benefit to society is that Select one: A. Insurance restores parties that have sustained losses to a better financial position than they had before their losses. B. It provides a source of investment funds for insurers. C. Through insurance, individuals and businesses are reimbursed for the costs of covered losses. D. It promotes loss control activities.

C. Through insurance, individuals and businesses are reimbursed for the costs of covered losses.

Which one of the following is the foundation for legal systems in most of Canada's provinces and most of the Unites States? Select one: A. Civil-law system B. Scholarly interpretations of codes and constitutions C. Treatises written by prominent jurists D. Common-law system

D. Common-law system

A potential drawback of open competition rate regulation is Select one: A. Higher administrative costs. B. Lower rates. C. Fewer insureds are likely to be insured in the voluntary standard market. D. Increased potential for insurer insolvency.

D. Increased potential for insurer insolvency.

Insurer X currently writes minimal insurance business in a state, but it would like to grow significantly. Which one of the following is the least likely basis for Insurer X's rate in this state? Select one: A. Insurer X's own experience countrywide B. Loss costs provided by an advisory organization C. Rates used by competitors D. Insurer X's own experience in the state

D. Insurer X's own experience in the state

Regulators protect insurance consumers when a claim occurs by ensuring that Select one: A. Parties do not file frivolous claims against insurers. B. Claimants do not pad their claims to obtain greater claim payments than are warranted. C. Insurers obtain reimbursement from all responsible parties. D. Insurers follow fair claim handling practices.

D. Insurers follow fair claim handling practices.

A primary objective of insurance regulation is to Select one: A. Introduce new insurance legislation. B. Introduce new policy language. C. Enforce insurance rebates. D. Maintain insurer solvency.

D. Maintain insurer solvency.

Which one of the following has the types of rate regulation listed in order from least stringent oversight to most stringent? Select one: A. Open competition, use and file, file and use B. Prior approval, use and file, open competition C. Open competition, government-mandated, prior approval D. Open competition, use and file, prior approval

D. Open competition, use and file, prior approval

Which one of the following is true regarding maintaining insurer solvency? Select one: A. Rates are developed based on the experience of all insurers, including those that become insolvent. B. All insurers rely on the same reinsurers to provide backing for the risks they cover. C. When one insurer becomes insolvent, they all become insolvent within a short time period. D. Other insurers may be required to contribute funds to help pay an insolvent insurer's obligations.

D. Other insurers may be required to contribute funds to help pay an insolvent insurer's obligations.

Insurance Company has underpriced its products in order to increase its market share by attracting customers away from its higher-priced competitors. Insurance Company may be in violation of which one of the following rate regulation standards? Select one: A. Rates should be competitive. B. Rates should not be excessive. C. Rates should not be unfairly discriminatory. D. Rates should be adequate.

D. Rates should be adequate.

Which one of the following is a way for regulators to minimize wide swings in the underwriting cycle? Select one: A. Not call attention to whether a market is hard or soft B. Increase insurance rates significantly C. Order that certain insurers withdraw from their markets D. Reduce the lag time in the rate approval process

D. Reduce the lag time in the rate approval process

Insurance regulators must balance their objective to maintain solvency and protect consumers with the effect regulation can have on Select one: A. The size of the insurance department. B. Shareholder returns. C. Corporate profits. D. The availability of insurance products.

D. The availability of insurance products.

Solvency regulation protects policyholders and the general public against Select one: A. Unethical market behavior of producers and claim personnel. B. The risk of making ill-informed insurance and other business decisions. C. Rates that are excessive and unfairly discriminatory. D. The risk that an insurer will be unable to meet its financial obligations.

D. The risk that an insurer will be unable to meet its financial obligations.

The purpose of using classification systems in rating is Select one: A. To spread costs equally over all policyholders. B. To reduce the amount of regulatory review of rate filings. C. To reduce insurer expenses. D. To group insureds with the similar expected losses.

D. To group insureds with the similar expected losses.

Insurance is often used or required in all of the following situations, EXCEPT: Select one: A. To satisfy legal requirements B. To satisfy business requirements C. To provide support for credit D. To increase social burdens

D. To increase social burdens