AU 60 - Chpt 2 Key Items

premiums written cannot exceed

3 times the surplus. If they exceed, then insurers cannot write new biz. insurers can use reinsurance to free up surplus in order to write new biz

During the course of an underwriting market conduct examination, examiners review

A statistically selected, random sample of policies.

Which one of the following statements is correct with respect to rate regulation?

It seeks to ensure that the rates for each class are adequate, fair, and not excessive.

Underwriting regulations seek to ensure correct classification of insureds because

Misclassification can result in inadequate premiums and drain an insurer's surplus.

Various state declination, termination, and disclosure laws prohibit declination or policy cancellation based on specified considerations. Which one of the following is one of those considerations?

Previous declination or termination of the applicant or named insured

An insurer receives two automobile insurance applications. The first applicant is age 35, male, and has a clean driving record. The second applicant is age 35, female, has had three speeding violations and a prior accident. The insurer accepts both risks, but charges the second applicant a higher premium. Which one of the following statements about this scenario is correct?

Regulations allow the insurer to charge more for insureds with poor driving experience

Which one of the following describes underwriting regulations that limit allowable classifications?

Regulations requiring unisex rating in personal auto insurance

Which one of the following statements is correct with respect to market conduct examinations?

The Department of Insurance (DOI) may suspend or revoke the insurer's certificate of authority if it finds that an insurer has violated a law.

Which one of the following statements is correct with respect to market conduct examinations?

They protect both insurers and consumers from unfair insurer practices.

Which one of the following statements is correct with regard to state regulation and the underwriting function?

Underwriters are affected by rate regulation, solvency regulation, and auto insurance laws.

Which one of the following statements is correct with regard to regulation and insurers' operations?

Underwriting regulation indirectly influences ratemaking and claim settlement.

Insurance underwriter Luis refuses to insure any teenage driver who appears to be discourteous or unkempt. Luis believes those behaviors will lead to greater losses under the policies he underwrites. Which one of the following practices, which underwriting regulations aim to prevent, is Luis using?

Unfair discrimination

if an insurer becomes insolvent(unable to meet its financial obligations as they become due)

consumers must absorb the resulting costs & can decrease consumer access to insurance & an affect the rates consumers pay for insurance

accurate distribution of costs is key to

achieving equity among insureds, a goal of both rate & UWing regulation

rate regulation seek to ensure that rate for each class are

adequate, fair, and not excessive

the patriot act restricts U.S. firms from

engaging in business w/persons & organizations on OFAC's specifically designated nationals lists

All UW regulations are meant to

prevent insurer insolvency & unfair discrimination

types of UW regulation to help prevent unfair discrimination

regulations that constrain insurers' ability to accept/modify/decline loss exposures, regulations that limit allowable classifications, & regulations that restrict the timing & conditions of coverage cancellations & non-renewals

Angela has purchased a homeowners policy from ABC Insurance. The policy has been in force for six months when Angela submits a large theft claim. In investigating the loss, ABC's claim representative determines that the claim is fraudulent and notifies the underwriter who decides to cancel the policy. Considering state termination laws as well as National Association of Insurance Commissioners (NAIC) recommended time frames, which one of the following statements is true regarding ABC's termination options?

ABC can cancel the policy but must give Angela 30 days notice.

Which one of the following statements is correct with respect to declination, termination, and disclosure laws?

After a policy renewal date, insurers can typically cancel coverage if there is a substantial increase in the risk insured.

LMN Insurance Company has recently opened three new regional offices and has been growing rapidly. Because of the rapid growth in written premiums, LMN's premium-to-surplus ratio has risen to three to one. Which one of the following is the most viable option for LMN to improve its premium-to surplus ratio for regulatory purposes?

Arrange for reinsurance to free up surplus.

ABC Insurance is considering entering new states as part of its growth plan. The executives of ABC decide not to pursue new business in low-income areas of states and provide underwriters with a map indicating the areas from which they are not to accept applications. This position likely violates regulations that

Constrain insurers' ability to accept, modify, or decline loss exposures.

Unlicensed teenage driver Bill applied for insurance on his automobile. Upon learning that Bill was not only unlicensed but that he intentionally misstated his age on the application, the insurer decided not to issue an auto policy for Bill. The action on the part of the insurer is known as

Declination.

Justin is part of a team performing a market conduct examination of XYZ Insurance Company's underwriting practices. He is reviewing the company's underwriting files. He verifies that each policy application has been completed and signed by the applicant. In addition, which one of the following should he also verify?

Each file contains information supporting the risk classification and premium rating.

All of the following are true regarding termination of insurance coverage, EXCEPT:

It can be done at any time without notice to the insured.

During a general market conduct examination of underwriting, examiners would look for evidence of all of the following, EXCEPT:

Inconsistent claim practices

The residual markets for auto and property insurance influence underwriters in which one of the following ways?

Insurers often must accept risks at inadequate rates.

frequent misclassification could contribute to

insurer insolvency

The Department of Insurance may order corrective actions, suspend, revoke, or impose fines if

they conduct a market examination of an insurer & find that they are violating regulations/rules/state statutes/policy requirements

unfair discrimination can result from

unfair application of standards & UW decisions that are not supported by statistical evidence