Consumer Issues and Regulations
National Association of Insurance Commissioners (NAIC)
A membership association of state insurance commissioners that promote the standardization of insurance laws between states on a state-level.
All of the following statements are true regarding the guaranty association, EXCEPT:
All life and health insurance policies are covered by the guaranty association Certain policies are not covered by the guaranty association, such as HMOs and policies from fraternal benefit societies.
Consumer Reporting Agencies
Businesses that supply consumer reports to third parties who have a valid business need for the information. Examples: MIB, Experian and Equifax.
Consumer Reports
Written and /or oral statements regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources.
Credit reporting agencies must provide consumers with a way to notify agencies that they do not want their information used. This includes providing consumers with a toll-free number to call. Consumers notifying agencies by phone can request a _______ hold on information; however, if a request is made in writing, the hold on information is __________
2 year hold ; permanent unless withdrawn from consumer
An insurer requests an investigative consumer report on an applicant. All of the following are true, EXCEPT:
The credit report includes information about the applicant's account balances. The investigative consumer report does not include information about the applicant's personal credit information obtained from creditors.
Jones applies for a life insurance policy. The insurer will need to view Jones' credit report to determine his credit-worthiness, and if he is a good risk to insure. When must the insurance company inform Jones of his rights under the Fair Credit Reporting Act?
When Jones completes the application The Fair Credit Reporting Act requires that applicants receive a notice upon policy application that a credit report may be performed.
The GLBA defines a consumer as
an individual who obtains financial products or services that are to be used primarily for personal, family, or household purposes from a financial institution. Customer is a consumer who has an ongoing relationship with a financial institution.
The purpose of the Gramm-Leach-Bliley Act is to:
Allow financial entities to merge and accommodate greater competition The Financial Services Modernization Act was passed in 1999 with the purpose of allowing financial entities to merge and accommodate greater competition. Formerly prohibited by law, this legislation gave insurers the ability to merge with banks, and either financial institution to perform the duties of both. Regardless, any entity acting as an insurer is regulated by its respective state insurance department.
According to the Fair Credit Reporting Act, consumer reports can have which of the following information?
Information concerning an individual's character Consumer reports are reports about the characteristics of an individual, including the individual's general character and reputation, employment history, living arrangements, and credit worthiness.
The purpose of a state life and health guaranty association is:
To make sure policyholders claims are paid when an insurer becomes insolvent Life and health guaranty associations provide a safety net for all member life, health and annuities insurers in a particular state. Guaranty associations protect insurers in the event of insurer insolvency, or inability to pay claims, thus also providing protection to policyholders of insolvent insurers.
Pretext interview is forbidden by law except in cases
where there is substantial evidence of fraud, criminal activity or misrepresentation.
Persons accessing credit information are subject to civil and criminal action for failure to comply with the Fair Credit Reporting Act. Persons who fail to comply
may be subject to pay a criminal penalty of up to $50,000.
The GLBA defines collection of information as
that which is organized by a person's name or personally identifiable number, such as a Social Security number or insurance policy number. The GLBA protects against the disclosure of nonpublic personally identifiable information. The first disclosure must be made when the customer relationship is established. Two disclosures must be made to customers.
There are two types of reports insurance underwriters will utilize to obtain credit information about an applicant:
Consumer Reports and Investigative Consumer Reports.
Consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within________ if requested. Consumers must be informed _________ that a consumer report may be requested, regardless of whether a report is actually ordered or not.
5 days ; at the time of application. Note- that the insurance company cannot tell the client what was in the report or why the client has been denied.
The information on a person's credit report is cleared after how many years?
7 Most information on a person's credit report is cleared after seven years.
All of the following policies and contracts are typically covered by state insurance guaranty associations, EXCEPT:
A universal life insurance policy issued by a fraternal benefit society Most state insurance guaranty associations do not insure policies issued by fraternal benefit societies and non-profit insurers.
Fair Credit Reporting Act (FCRA)
Act that protects privacy of credit information and ensures that information supplied is accurate.
With regard to an investigative consumer report, consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within ____ day(s) if requested.
Five Consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within five days, if requested.
A written report about a consumer's character, general reputation, personal characteristics, or mode of living but are obtained through personal interviews with neighbors, friends, or associates of the consumer is a(n):
Investigative consumer report Investigative consumer reports contain information on a consumer's character, general reputation, personal characteristics, or mode of living but are obtained through personal interviews with neighbors, friends, or associates of the consumer.
Which of the following is generally not insured by state insurance guaranty associations?
Policies from fraternal benefit societies Most state insurance guaranty associations do not insure policies issued by fraternal benefit societies and non-profit insurers.
Who is subject to the provisions of the Fraud and False Statements Act?
State Insurance Commissioners Insurance companies Agents Commissioners, insurers, agents, and employees of insurers are subject to the provisions of the Fraud and False Statements Act.
Guaranty associations
State life and health guaranty associations provide a safety net for all member life, health and annuities insurers in a particular state. Guaranty associations protect insureds in the event of insurer insolvency, or inability to pay claims.
The purpose of Fraud and False Statements legislation is to provide punishment for people who
willfully engage in insurance fraud or make false statements that affect insurance business and interstate commerce. Commissioners, insurers, agents, and employees of insurers are subject to the provisions of the act.
Consumers have the right to dispute a credit report requiring the credit-reporting agency to perform a reinvestigation. If the credit report is discovered to be inaccurate, or accurate what happens?
If the credit report is discovered to be inaccurate, the report must be corrected and sent to all parties who received a credit report from the agency within the prior two years. A credit report that prompts an adverse action must be provided to the consumer with a statement of the consumer's rights in writing prior to carrying out the adverse action.
When an insurer requests an investigative consumer report on an applicant, which of the following is true?
The report includes information regarding the applicant's general reputation and personal characteristics. The investigative consumer report does not include information about the applicant's personal credit information obtained from creditors.
What is the purpose of the Fair Credit Reporting Act?
To regulate the way credit information is collected and used The Fair Credit Reporting Act (FCRA) was passed in 1970 with the purpose of regulating the way credit information is collected and used.
Consumers notifying agencies by phone can request a _____-year hold on information; however, if a request is made in writing, the hold on information is _______
Two Consumers notifying agencies by phone can request a two-year hold on information; however, if a request is made in writing, the hold on information is permanent unless withdrawn by the consumer.
With respect to life and health insurance guaranty associations, what are agents prohibited from doing?
Using the existence of the life and health guaranty association as an inducement to selling an insurance contract Insurance producers are not permitted to use the existence of a state guaranty association to induce a sale of insurance or annuities.
Consumer Reports Prohibited Information The following information may not be included in consumer reports unless the consumer credit report is requested for life insurance policies with a face amount of $150,000 or more: (5)
1. Bankruptcies dating back more than 10 years 2. Civil suits and judgments dating back more than seven years or cases in which the statute of limitations has expired, whichever period is longer 3. Tax liens dating back more than seven years 4. Adverse information dating back more than seven years 5. Reports of a consumer's arrests, indictments or convictions
The Fair Credit Reporting Act states that generally, consumer reports cannot contain the following information, EXCEPT:
An individual's character Consumer reports are reports about the characteristics of an individual, including the individual's general character and reputation, employment history, living arrangements, and credit worthiness.
Pretext interviews
An interviewer assumes a false identity or refuses to disclose his true identity and interviews a person without disclosing the true purpose of the interview. Are usually prohibited by law.
Investigative consumer reports cannot be performed unless the consumer has been notified in writing of the report within ______ day(s) of when the report was initially requested.
Three Investigative consumer reports cannot be performed unless the consumer has been notified in writing of the report within three days of when the report was initially requested.
An agent is guilty of committing fraud. What must the person obtain in order to transact insurance?
Waiver of consent from the state insurance department An agent guilty of committing fraud will not be permitted to transact insurance. In order to transact insurance again, the agent must obtain a waiver of written consent from their state insurance department.
When must the two disclosures pertaining to the Gramm-Leach-Bliley Act be made?
When the customer relationship is established; and prior to disclosure of protected information Two disclosures must be made to customers. The first disclosure must be made when the customer relationship is established. This occurs when a consumer becomes a customer, such as when an insurance policy is purchased. The second disclosure must be made before disclosure of protected information. At this time, the company must provide the customer with an opportunity to opt out of this disclosure and instructions for how to opt out.
1st disclosure of information
The first disclosure must be made when the customer relationship is established. This occurs when a consumer becomes a customer, such as when an insurance policy is purchased. At this time, the company provides the customer with their privacy policies. The company must provide customers with an update of privacy policies on an annual basis.
NAIC purpose
The purpose is to advance the uniformity of regulation between states in insurance matters without encouraging the imposition of federal regulation. The NAIC does not have legal authority, but has done much to promote the standardization of insurance laws and regulations among the states including the model laws for individual accident and sickness policy provisions, standard valuation laws, and nonforfeiture benefits.
National Conference of Insurance Legislators (NCOIL)
purpose is to help state legislators make informed decisions regarding insurance issues, to improve the quality of insurance regulation, and to combat the federal government from encroaching on each state's control of insurance regulations.
Penalties
A person convicted of violation is subject to punishment by a civil fine of up to $50,000 per act or in an amount received or provided in the course of the violation, whichever is greater, or imprisonment for a maximum of 10 years, or both penalties.
The Fair Credit Reporting Act states that generally, consumer reports cannot contain the following information, EXCEPT: Select one: a. Adverse information about an individual that dates back over seven years b. Tax liens older than seven years c. An individual's character d. An individual's criminal history
c. An individual's character
If an insurer declines to offer coverage or must modify the coverage as a result of the information provided in a consumer or investigative report, the insurer must provide
the consumer with the name of the credit reporting agency and address.
All life, health and annuities insurers within a state are required to be members of the state guaranty association, unless exempt (i.e., fraternal benefit societies and nonprofit insurers). There is a dollar limit to how much a guaranty association will pay per policy and per insured. Each state has its own set of limits, such as:
$200,000 for life insurance death benefits, $100,000 for life insurance cash surrender and $100,000 for health insurance benefits.
2nd disclosure of information
The second disclosure must be made before disclosure of protected information. At this time, the company must provide the customer with an opportunity to opt-out of this disclosure, and instructions for how to opt-out. The disclosure will indicate to what the opt-out applies. The opt-out must be in writing.
What is the maximum civil fine for an individual or entity that violates the Fraud and False Statements Act?
$50,000 per violation The attorney general can bring a civil action against a person for engaging in fraud or false statements. A person convicted of violation is subject to punishment by a civil fine of up to $50,000 per act or in an amount received or provided in the course of the violation, whichever is greater, or imprisonment for a maximum of 10 years, or both penalties, except that the term of imprisonment will be a maximum of 15 years if the statement or report, or overvaluing of land, property or security jeopardized the safety and soundness of an insurer and was a significant cause of such insurer being placed in conservation, rehabilitation, or liquidation in the appropriate U.S. district court.
Bob has a second mortgage with XYZ bank, and Shirley has one checking and two savings accounts with ABC bank. Shirley decides to cash one of her paychecks at XYZ bank because she doesn't have time to stop at her bank. Which of the following is true under the Gramm-Leach-Bliley Act?
Bob is a customer of XYZ bank and Shirley is a consumer of XYZ bank. Bob has an ongoing relationship with XYZ bank, and is therefore a customer. Shirley doesn't normally bank at XYZ bank, but merely cashed one of her paychecks at XYZ bank, so she is a consumer.
An agent is guilty of committing fraud. What must the person obtain in order to transact insurance? Select one: a. Certificate of authority from the state insurance department b. Waiver license c. Waiver of consent from the state insurance department d. Exception to transact from the Supreme Court
C. Waiver of consent from the state insurance department
A person who is guilty of a fraudulent act may be subject to the following penalties:
Civil fine up to $50,000 and imprisonment up to 10 years Each act of fraud is punishable by a civil fine up to $50,000 and imprisonment up to 10 years.
What must a person obtain in order to reenter the insurance industry as an agent, after having been convicted of a criminal felony that involves a breach of trust, dishonest, or has violated the Fraud and False Statements Act?
Waiver Anyone who is convicted of a criminal felony that involves a breach of trust, dishonesty, or a violation of the Fraud and False Statements Act is prohibited from engaging in the business of insurance without first obtaining a waiver of written consent from the appropriate state insurance department Commissioner in the jurisdiction that the person intends to engage in the business of insurance. Any person who fails to obtain such written consent is subject to federal criminal and civil penalties, and administrative actions.
All of the following policies and contracts are typically covered by state insurance guaranty associations, EXCEPT: Select one: a. A whole life insurance policy issued by a mutual insurer b. A term life insurance policy issued by a stock insurer c. An individually-owned annuity d. A universal life insurance policy issued by a fraternal benefit society
d. A universal life insurance policy issued by a fraternal benefit society
What is the penalty for failing to comply with disciplinary actions for violation of the Fair Credit Reporting Act?
Criminal penalty of $50,000 Persons who fail to comply may be subject to pay a criminal penalty of up to $50,000.
Which of the following correctly states the maximum penalty for a person in violation of the Fair Credit Reporting Act?
Criminal penalty up to $50,000 Persons accessing credit information are subject to civil and criminal action for failure to comply with the Fair Credit Reporting Act. Persons who fail to comply may be subject to pay a criminal penalty of up to $50,000.
What governmental agency operates the Fair Credit Reporting Act?
Federal Trade Commission The Federal Trade Commission (FTC) administers the Fair Credit Reporting Act (FCRA).
Which of the following correctly identifies the two types of reports insurance underwriters use to obtain credit information about an applicant?
Investigative consumer reports and consumer reports There are two types of reports insurance underwriters will utilize to obtain credit information about an applicant. These are consumer reports and investigative consumer reports. Pretext interviews are a third source of information, but are usually prohibited by law.
When an insurer requests an investigative consumer report on an applicant, which of the following is true? Select one: a. The applicant can request further information about the report that must be provided to the applicant within 30 business days. b. The report includes information regarding the applicant's general reputation and personal characteristics. c. The credit report includes information about the applicant's account balances. d. The applicant must only be notified by phone about the report.
b. The report includes information regarding the applicant's general reputation and personal characteristics.
Whoever is engaged in the business of insurance whose activities affect interstate commerce will be punished if they:
Knowingly, with the intent to deceive, makes any false material statement or report, or Overvalues land, property or security in connection with any financial reports or documents presented to any insurance regulatory official or agency to examine the affairs of such person, and for the purpose of influencing the actions of such official, agency, or examiner. The attorney general can bring a civil action against a person for engaging in fraud or false statements.
Exception
The term of imprisonment will be a maximum of 15 years if the statement or report, or overvaluing of land, property or security jeopardized the safety and soundness of an insurer and was a significant cause of such insurer being placed in conservation, rehabilitation, or liquidation in the appropriate U.S. district court. Anyone who is convicted of a criminal felony that involves a breach of trust, dishonesty, or a violation of this Act is prohibited from engaging in the business of insurance without first obtaining a waiver of written consent from the appropriate state insurance department Commissioner in the jurisdiction that the person intends to engage in the business of insurance. Any person who fails to obtain such written consent is subject to federal criminal and civil penalties, and administrative actions.
Agents must inform applicants that a credit report may be performed:
Upon application Agents must inform applicants that a credit report may be performed upon policy application.
Investigative Consumer Reports contain information on a consumer's character, general reputation, personal characteristics, or mode of living, but are obtained through
personal interviews with neighbors, friends, or associates of the consumer. Investigative consumer reports do not use credit information from creditors, credit records, or credit reporting agencies. Investigative consumer reports cannot be performed unless the consumer has been notified in writing of the report within three days of when the report was initially requested.
The National Association of Insurance and Financial Advisors, or NAIFA, is an association that works for
the best interest of policyholders and seeks to broaden the opportunity and advancement of the individual agent. NAIFA represents the interest of insurance professionals and advocates for a positive legislative and regulatory environment, enhanced business and professional skills and the promotion of ethical conduct of insurance professionals.
Gramm-Leach-Bliley Act (GLBA), Financial Services Modernization Act of 1999
with the purpose of allowing financial entities, such as banks, to merge and create greater competition. Anyway, state insurance departments regulate any entity selling insurance.
