Loma 311 module 3

defined standards version

The NAIC Investments of Insurers Model Act (Defined Standards Version) provides a prudent person standard that establishes statutory guidelines insurers are to follow in making investment decisions. The Defined Standards Version does not specify quantitative limits on insurer investments.

Department of Labor (DOL)

a federal administrative agency whose mission is to foster and promote the welfare of job seekers, workers, and retirees. The DOL rule, sometimes called the DOL fiduciary rule, imposed a higher standard of conduct than did SEC and FINRA suitability rules by requiring financial professionals to provide advice considered to be in the best interest of the customer in regard to retirement plans and accounts.

Market Conduct Examination

a formal investigation of an insurer's nonfinancial operations. A market conduct examination determines if the insurer's operations comply with applicable laws and regulations. Like financial condition examinations, a market conduct examination may be carried out by one or more state insurance departments.

financial condition exam

a formal investigation that is designed to IDENTIFY and MONITOR THREATS to an insurer's solvency. These examinations may be carried out by one or more state insurance departments. Statutes typically require an examination of each insurer within a specified period of time. State insurance departments also have authority to conduct more frequent examinations if needed. States conduct two types of financial condition examinations. 1. A full-scope examination reports on an insurer's financial position taken as a whole. 2. A limited-scope examination focuses on one or more specific areas of an insurer's finances, such as its reserves or its ability to pay claims. a state does NOT undergo the FCE each year

Target Examination

a limited-scope market conduct examination to ensure that the insurer's operations comply with state insurance laws and regulations. A target examination may focus on (1) a specific line of business or (2) a specific business practice, such as an insurer's replacement activities or advertising materials.

Some of the activities of an insurer that may be reviewed in a market conduct examination are:

-Advertising and sales - Insurance agent licensing, appointments, and accounts - Premium rating and underwriting - Policyowner service -Claims - Complaint handling - Technology, such as cybersecurity and use of data - Company operations and management -The insurer's use of vendors and third-party administrators

internal and external fraud

-Internal fraud is fraud that is committed by an insurer's employees, such as officers, directors, and insurance agents. - External fraud is fraud committed by individuals who are not employed by the insurer, such as consumers, claimants, and individuals who have some type of business relationship with the insurer or who are in some way connected with an insurance transaction.

NAIC goals

-Promote competitive markets -Facilitate the fair and equitable treatment of consumers -Promote the reliability, solvency, and financial stability of insurers - Support and improve state regulation of insurance The NAIC DEVELOPS model insurance laws and REGULATIONs. States respond to model laws and regulations in one of the following ways: (1) they may adopt the model exactly as written, (2) they may use the model as the basis for developing legislation or regulation, or (3) they may ignore the model. However, for a state's insurance department to maintain accreditation with the NAIC, the department must have adequate statutory and administrative authority to regulate an insurer's corporate and financial affairs. This authority is established in part by the adoption of model solvency laws.

Preemption

"a legal doctrine that holds that some matters are of such national importance that the federal laws override—or preempt—any conflicting state laws. The states cannot pass laws that are inconsistent with such federal laws."

Reserves and Assets

- uniform across the US The states define which assets an insurer may include on its Annual Statement. The assets that an insurer may report as statutory assets are known as admitted assets. All other assets are known as nonadmitted assets. An insurer must report nonadmitted assets, such as furniture and fixtures, separately and may not use them to support its required reserves. The admitted assets held by U.S. life and health insurers primarily consist of corporate stocks and bonds, government securities, mortgages, and real estate.

a new product means:

-A product that has yet to be offered by insurers in the jurisdiction - A product that the insurer will offer in the jurisdiction for the first time even if a similar product is available from other insurers - A product that the insurer currently offers in the jurisdiction but plans to change

Prospectus

a communication, usually in writing, that offers a security for sale and that must contain detailed information about the issuer of the security and the security itself.

Annual Statement

a comprehensive financial report that insurers must file with the NAIC and all the state ins depts they are licensed in. STORED in a financial database Must file by March 1st Most state require shorter versions to be filed quarterly.

Uniform Electronic Transactions Act (UETA)

a model law adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL) to provide for the effectiveness of electronic signatures. If a provision of a state law based on the UETA is inconsistent with E-SIGN, then E-SIGN preempts that state law provision. legal documents and transactions that REQUIRE pen-and-ink signatures include: - Notices of the cancellation of life or health insurance coverage -Wills and testamentary trusts -Court orders - Mortgage foreclosures UNCITRAL Model Law on Electronic Signatures sets criteria for the technical reliability of electronic signatures. 2 Countries that have adopted laws based on the UNCITRAL Model Law include China, India, Jamaica, Mexico, Nicaragua, Paraguay, Thailand, and Vietnam.

Underwriting Practices

Among other things, regulators look at - Data insurers use, where it comes from, and how it is used -How the technology works -How insurers notify applicants of the use of this data and technology -Options available to applicants for contesting adverse underwriting decisions based on the data - Procedures insurers use to protect the data

Suitability in Annuity Transactions Model Regulation

This model regulation sets standards and procedures that apply to annuity recommendations to consumers.

interstate commerce vs intrastate commerce

interstate= commerce across state lines intrastate= commerce WITHIN a state

National Association of Registered Agents and Brokers Reform Act of 2015 (NARAB II)

serves as a national clearinghouse for licensing insurance agents so that they can sell insurance in more than one state.

Insurance Fraud Prevention Model Act

a model law designed to enable the state insurance departments to: - Investigate insurance fraud -Stop fraudulent insurance acts - Work with local, state, and federal law enforcement and regulatory agencies to enforce laws that prohibit insurance fraud The Insurance Fraud Prevention Model Act requires insurers to include a fraud warning statement on all insurance applications and claim forms. ++++ the IFPMA requires states to create an insurance fraud unit within an administrative agency of the state govt' ++++ ONLY an number of states require each licensed insurer to develop and maintain an antifraud plan and to file it with the state ins dept Some states require each insurer to have a work group, called a special investigative unit (SIU), which is responsible for detecting, investigating, and resolving claims, particularly those involving insurance fraud. The SIU typically includes employees from the claim, legal, and internal audit areas as well as independent investigators. Some states require insurers to file an SIU annual report about their antifraud efforts, including staff training.

Securities Broker and dealer

a person, corporation, or other legal entity engaged in the business of buying and selling securities for the accounts of OTHERS. Securities brokers often operate as both a securities broker and a securities dealer. securities dealer is a person, corporation, or other legal entity that is engaged in the business of buying and selling securities for its OWN account. The term broker-dealer is often used to refer to individuals and firms that transact securities business.

administrative hearing

a proceeding held by an administrative agency—in this case, the insurance department—in accordance with the state's administrative laws and procedures. An individual, known as an administrative law judge, conducts the hearing. The administrative law judge has the authority to hear testimony and decide questions of law and fact. The insurance department must give the insurer proper notice of the hearing. ++++ the state ins dept may NOT take action against an insurer without an ADMIN hearing, UNLESS the insurer consents to the action

Enterprise Risk Management (ERM)

a system used to identify, quantify, and manage risks from potential threats and opportunities. ERM programs include formal reporting systems that insurers use to report the status of their risks to regulators and rating agencies.

International Association of Insurance Supervisors (IAIS)

a voluntary membership organization of insurance supervisors and regulators from more than 200 jurisdictions in nearly 140 countries. 2 The IAIS promotes effective and globally consistent supervision of the insurance industry. The IAIS publishes various standards that describe best practices for insurers and regulators worldwide. The mission of the IAIS is to - Improve regulatory supervision of the insurance industry - Develop and maintain fair, safe, and stable insurance markets for the protection of policyholders - Support global financial stability

Prudential Regulation

also called solvency regulation, primary focus in most countries . These countries impose minimum capital requirements as a prerequisite to obtaining a license to conduct insurance business. Regulators deny a license to any company that is financially unsound.

unfair trade practice acts

defines certain practices, including sales practices, as unfair. These insurance laws prohibit practices in the business of insurance if the practices are committed (1) flagrantly in conscious disregard of the act or (2) so frequently as to indicate a general business practice. Prohibited activities include: = Defamation of any insurer =False statements and false entries in books or records = Unfair discrimination =Rebating, which is a sales practice in which an insurance agent offers a prospect an inducement, such as all or part of the agent's commission, to purchase a policy from the agent when the inducement is (1) not offered to all applicants in similar situations and (2) not stated in the policy

risk-based capital (RBC) ratio requirements

enable regulators to evaluate the adequacy of an insurer's capital compared to the riskiness of its operations. Thus, an insurer that exposes itself to more risk must maintain more capital and surplus than an insurer that exposes itself to less risk. ++ most states require insurers to meet RBC ratio requirements

grace period provision

gives the group policyholder a grace period of 31 days for the payment of renewal premiums. The insurer can terminate a group life insurance contract for nonpayment of premium at the end of any grace period.

Cybersecurity

includes the methods used to (1) prevent theft, corruption, and unauthorized erasure of electronic data and (2) protect networks, computers, and programs from being compromised or shut down without authorization.

Nonpublic personal information

personally identifiable information about a consumer that is not publicly available. Publicly available information generally may be shared without restriction. Information is publicly available if a financial firm reasonably believes the information is available to the general public from government records, widely distributed media, or disclosures required by law. As a general rule, a financial firm is permitted to disclose nonpublic personal information to a nonaffiliated third party (either directly or through an affiliate) only after the firm has taken the following steps: -Notified the consumer, in a clear and conspicuous manner, that the information may be disclosed to such a third party; this notice may be given via a paper document or electronically - Given the consumer an opportunity to opt out of the disclosure by directing that the insurer not disclose the information -Explained to the consumer how to opt out of the disclosure

EU's Directive on Privacy and Electronic Communications

seeks to ensure the free flow of information while protecting the privacy of personal information. The EU Directive requires providers of publicly available electronic communications services to take specific steps to safeguard the security of their services and ensure the privacy of electronically transmitted information. the EU Directive prohibits the transfer of personal information from the EU to a non-EU country unless the non-EU country provides adequate protection of the information.

Financial Analysis HAndbook

state insurance departments refer to the NAIC's Financial Analysis Handbook to evaluate insurers and to identify insurers having financial problems as well as those that might develop problems in the future. The NAIC maintains separate handbooks for life, health, and property/casualty insurers.

SEC Cybersecurity

the SEC: - Issues Investor Alerts and Investor Bulletins to help investors protect themselves from cyber threats -Provides cybersecurity guidance to broker-dealers, investment companies, exchanges, and other market participants to help them protect customers from cyber threats - Has identified cybersecurity as a priority in its examinations of market participants - Has established a Cyber Unit in its Division of Enforcement to focus on violations involving cybersecurity Investment companies and broker-dealers must adhere to SEC regulations that apply to information security. These regulations include (1) a requirement for written policies and procedures to protect customer information and (2) duties regarding identity theft.

noncontributory plan

the group policyholder pays the entire cost of the premium for the coverage. state insurance laws usually require all eligible group members to be covered under the plan unless they reject the coverage in writing.

Market conduct exam steps

the insurer has the right to request a formal hearing with an officer authorized to hear testimony and make a decision about the final report. The insurance department finalizes the report and places it on file. The department provides a copy of the report to the NAIC, which maintains the report in its information system. Once the examination report is filed, the insurance department, if appropriate, issues an order to the insurer listing recommendations from the report. After completion of the market conduct examination, many insurance departments conduct a follow-up examination, known as a reexamination. The purpose of the reexamination is to determine whether the insurer has complied with the recommendations or directives contained in a previous examination report. investment decisions are NOT reviewed in the MCE

General Data Protection Regulation (GDPR)

-enhances the rights of individuals - Expands the definitions of personal data -Expands application of the EU Directive to include more non-EU firms - Increases focus on cybersecurity -Adds more stringent sanctions for violations EU is MORE stringent than the US and GDPR STRENGTHENED the protections by the EU

replacements

In many states, the Unfair Trade Practices Act governs replacements by prohibiting misrepresentations. Also, most states have specific regulations that apply to replacements. Typically, these regulations are based on the NAIC Life Insurance and Annuities Replacement Model Regulation (Model Replacement Regulation). The goal of the Model Replacement Regulation is to make sure that insurers and insurance agents provide consumers with fair and accurate information about policies so that consumers can make informed decisions. Insurance Agents: an insurance agent must submit a replacement statement along with every application for a policy intended to replace an in-force individual life insurance policy or annuity contract. The applicant and the agent must sign this statement. The statement indicates whether the policy applied for will replace an in-force policy. If the applicant has an in-force policy that is subject to the Model Replacement Regulation, then the agent has a number of other duties. One such duty is to give the applicant a written notice regarding replacement. This notice includes general information about the potential effect of a replacement. It advises the applicant to consider all the relevant facts before making a replacement. Both the applicant and the agent must sign this notice. INSURERS: when an insurer uses direct response solicitations in which no agent is involved, the insurer must ask an applicant whether he intends to replace an existing policy. If so, the insurer must provide the applicant with a notice regarding replacement and must make an effort to secure a copy of the notice signed by the applicant. Insurance companies that use insurance agents to sell insurance are required to oversee the activities of their agents and to ensure that agents submit required statements and notices. When another insurance company's policy will be replaced: -The replacing insurer is required by most states to send a written notice to the insurer that issued the policy that may be replaced. The replacing insurer must provide the original insurer with certain information about the policy for which the applicant applied. -The original insurer then must contact its policyowner to offer additional information about the existing policy. The original insurer has the opportunity to attempt to keep its existing business.

backdating

Many states prohibit insurers from backdating individual life insurance policies for a period of time more than six months. Backdating is a practice in which the insurer makes the policy's effective date earlier than the date of the application. In this situation, the policyowner pays premiums for a period of time—before the effective date—when coverage was not provided. Insurers typically use backdating to lower the premium or to comply with a legal agreement, such as a divorce decree. However, to protect policyowners, the states limit the period of time during which premiums are payable when no coverage was provided. An example of a readability test is the Flesch reading ease test.

Advertisements of Life Insurance and Annuities Model Regulation (Model Advertisements Regulation)

The Model Advertisements Regulation requires insurers to disclose to the public all relevant information in their advertisements of life insurance and annuities. The regulation applies to advertisements distributed or used by an insurance company or an insurance agent. The Model Advertisements Regulation also specifies the types of advertisements that are subject - Print or audiovisual material in newspapers, magazines, the Internet, direct mail, billboards and similar displays, radio and television scripts, or other mass communication media - Descriptive literature and sales aids of all kinds used by an insurer or insurance agent, such as circulars, leaflets, booklets, web pages, depictions, form letters, and illustrations - Materials used to recruit and train insurance agents when the materials are designed to be used to induce the public to purchase, increase, modify, reinstate, borrow on, surrender, replace, or retain a policy - Sales talks, presentations, and materials prepared for use by insurance agents

File-and-use law

require filing but do not require affirmative approval before the insurer may start using the form.

North American Securities Administrators Association (NASAA)

requires financial professionals, including insurance agents who sell variable products, to report suspected senior financial exploitation to state authorities and to a third party previously identified by the senior. The model law also allows financial professionals to delay fund disbursements from seniors' accounts. The law grants immunity from civil liability in such situations. These laws may include one or more of the following: - Disclosure requirements at solicitation and on contract forms - Limits on surrender charges for annuities sold to seniors -Training for financial professionals to detect potential fraud, exploitation, and financial abuse of seniors

FINRA Rules

=Broker-dealers must establish and MAINTAIN a system to supervise the activities of the registered persons who work under their control. This system must reasonably ensure compliance with regulatory requirements. A principal must directly supervise the activities of each registered representative. ++When making an investment recommendation to a customer, a registered person must have reasonable grounds to believe the recommendation is suitable for the customer. =Advertisements, sales literature, and correspondence that broker-dealers and registered persons use to communicate with the public must meet certain requirements. For instance, sales materials must NOT contain promises of specific investment results. =Broker-dealers must file certain public communication materials with FINRA for review. During the first year a broker-dealer is a FINRA member, the broker-dealer must submit all such materials to FINRA before use. After the first year, the broker-dealer must submit certain public communications to FINRA within 10 days of their first use. ++broker-dealers must maintain a file of all such materials and must keep these materials for at least three years after every use

Closed-end investment companies.

A closed-end investment company is an investment company that issues a fixed number of shares to the public and does not redeem shares that are outstanding.

General vs. Separate account

A general account is an undivided asset account that an insurer maintains for the purpose of recording assets that back the reserves for traditional life insurance and fixed annuity products. Regardless of the investment performance of general account assets, the insurer pays the benefit amounts guaranteed by these products. Thus, the insurer takes on the financial risk. A separate account is an asset account, in which premiums for variable life insurance and variable annuity products are held. The assets in a separate account may be divided among various investment funds or subaccounts. The owner of a variable product selects the subaccount(s) into which the insurer deposits the premiums. Variable products do not guarantee the exact amount of benefits payable, so the policyowner or contract owner, NOT THE INSURER, takes on the financial risk of the investments. +++ individual variable annuity contracts used to fund group retirement plans are subject to FEDERAL TAX LAWS and Employee Benefits laws ONLY

group contract and group policyholder

A group contract, or group master contract, is a contract between an insurer and a group policyholder. The group policyholder is an employer or other party that purchases insurance coverage, according to the terms of the contract, for a number of people known as group insureds. The insureds have a defined relationship to the group policyholder. For instance, they may be employees of an employer, members of a union, or debtors who have borrowed money from a lender. most state laws do not require that insureds receive a copy of the group contract, but the laws do require that each insured receive a written description of the group life insurance plan. Every insured must receive a certificate of coverage, also called a certificate of insurance, which is a document that describes the insured's coverage and outlines the insured's rights under the group master contract. +++ an insurable interest is NOT required in a group life ins contract

effective date of contract

A group life insurance contract becomes effective on the date mutually agreed upon by the insurer and the group policyholder. The agreed-on date serves as the effective date even if the group policyholder pays the initial premium on a different date. The effective date of each insured's coverage is determined by a number of provisions found in the group contract and certificate of coverage,

trust and trust agreement

A trust is a fiduciary relationship created when one party, the grantor, transfers ownership of property to another party, the trustee, who holds legal title to the property for the benefit of another party, the trust beneficiary. The property is known as the trust property or trust fund. A written document, called a trust agreement, spells out the terms of a trust, including instructions as to how the trustee is to handle the trust property or trust fund. When insurance is issued to the trustees of a trust fund, the trustees own the contract and have a duty to manage the trust fund for the benefit of the insureds.

Open-end investment companies.

An open-end investment company is an investment company that establishes a portfolio of securities and issues shares in the portfolio to the public. The investment company will redeem shares upon the owner's request. Such companies are considered open-end companies because their capitalization is not fixed and they normally issue more shares as people want them. Mutual funds are the primary type of open-end investment company.

Electronic Signatures in Global and National Commerce Act (E-SIGN)

E-SIGN applies to commercial, consumer, and business transactions that affect interstate or foreign commerce and to transactions that are regulated by both the federal and state governments. E-SIGN has the following legal effects when all of the parties to a transaction agree to use an electronic medium: - An electronic signature is the legal equivalent of a pen-and-ink signature. - An electronic contract is the legal equivalent of a contract written on paper. - Electronic documents are the legal equivalent of legally required written documents—known as records.

Required Policy Provisions

Entire contract provision. Defines the documents that constitute the contract between the insurer and the policyowner. Grace period provision. Allows the policyowner to pay a renewal premium within a stated period of time after a premium due date. Incontestability provision. Denies the insurer the right to avoid the contract on the grounds of a material misrepresentation in the application after the contract has been in force for a stated period of time. Misstatement of age or sex provision. Describes how the insurer may adjust the policy benefit or premium if the application incorrectly stated the insured's age or sex. Group life insurance policies have a misstatement of age provision, but seldom have a misstatement of sex provision because premium rates typically do not vary according to the sex of the insured. Settlement options provision. Grants the policyowner or beneficiary several choices as to how the insurer will pay the policy proceeds. Policy loan provision. Gives the owner of a cash value life insurance policy the right to take out a loan for an amount that does not exceed the policy's net cash value less one year's interest on the loan. A cash value policy is a life insurance policy that provides insurance coverage during the insured's lifetime and has a savings element, known as the cash value. Nonforfeiture provision. Describes the options available to the owner of a cash value life insurance policy if the policy lapses or if the policyowner decides to surrender the policy. Policy dividends provision. Describes the ways the owner of a participating policy may receive policy dividends. A participating policy is one that pays the policyowner a policy dividend when the insurer has favorable financial results. Provisions required in individual policies ONLY: Free look provision. Gives the policyowner a period of time (usually 10 days) following policy delivery to cancel the policy and receive a refund of all premiums paid. Reinstatement provision. Describes the conditions the policyowner must meet to reinstate the policy after a lapse.

IRIS Ratios

Insurance Regulatory Information System there are 12 Pass or no pass idea if they pass no further action. If no pass, Examiners apply qualitative and quantitative standards to further analyze insurer's annual statement data, IF Unusual results, NAIC reports first to insurer's state of domicile and then to the others states where the insurer operates. Regulatory action... STate regs have the authority to act based on their judgement that an insurer's financial condition is hazardous

Legislative, Executive, Judicial

Legislative. The state legislature enacts and modifies statutes to regulate the activities of insurers. These statutes are found in the state insurance code, which is updated periodically. STATUTORY Executive. The state insurance department adopts regulations that fill in the details of insurance statutes. The insurance department also enforces statutes and regulations and oversees the operations of all insurers that operate in the state. The state attorney general writes opinions that interpret state laws or regulations. The attorney general writes opinions upon the request of legislators, state officials, private persons, or businesses. Although attorney general opinions do not have the same force of law as statutes, regulations, or court decisions, state officials usually follow these opinions. ADMINISTRATIVE Judicial. The state courts have authority to interpret an insurance law's meaning when the application of the law to a specific situation is not clear. CASE LAW

debt-creditor group

Life insurance issued to a debtor-creditor group is referred to as credit life insurance. credit insurance generally is not sold by traditional insurance agents but by lenders. As the borrower pays down the loan, the amount of life insurance decreases. types of regulatory requirements that are unique to credit life insurance: -State laws place maximum limits on the amount of credit life insurance that may be issued to a debtor. These limits are designed to ensure that a debtor's coverage is generally equal to the total amount of the insured's debt. -Laws in many states require insureds to be given at least a 30-day free look period and the right to cancel the coverage at any time. -State laws require that specified information be disclosed to debtors before they elect to purchase credit insurance. For example, the lender must disclose that it cannot require the debtor to purchase credit insurance as a condition of obtaining approval of the loan.

Market Action Tracking System (MATS)

MATS is an electronic system maintained by the NAIC that allows states to schedule and coordinate market conduct examinations. It provides regulators with a method of sharing information on actions taken during the investigation of insurers.

Solvency vs. market Conduct laws

Solvency laws are enacted to make sure that insurers are financially able to meet their debts and pay policy benefits when they come due. Solvency laws affect an insurer's capitalization, policy design, and policy reserves. Market conduct laws are enacted to make sure that insurers conduct business fairly and ethically. Market conduct laws set mandated benefits and regulate most of the nonfinancial operations of insurers, such as management, marketing and advertising, sales, underwriting, policyowner service, complaint handling, agent licensing, and claims. Solvency laws apply to reserves, assets, investments, capital and surplus

defined limits version

The NAIC Investments of Insurers Model Act (Defined Limits Version) specifies the types of assets that insurers are permitted to treat as admitted assets.

Employees and the group model act

The Group Life Insurance Model Act permits a group contract to define the term "employees" to include: - Employees of subsidiary corporations -Employees of affiliated corporations, proprietorships, and partnerships that are under common control - Retired employees, former employees, and directors of a corporate employer

Interstate Insurance Product Regulation Commission (IIPRC)

The IIPRC is a multistate public entity that operates alongside the state insurance departments to: - Enable member states to develop uniform national product standards to protect consumers - Provide a central point of filing for covered insurance products -Review product filings and make regulatory decisions based on uniform national product standards An insurer that operates in states that are IIPRC members may choose one of the following approaches: -Make one product filing with IIPRC. In this case, the IIPRC will apply its uniform product standards and review process. Insurers that file policy forms with the IIPRC do so using SERFF. - Make a separate filing in each state where the policy form will be used. In this case, each state applies its own product requirements and review process. If an insurer operates in a state that has opted out of the IIPRC uniform product standards, the insurer must file policy forms directly with that state's insurance department.

Insurance Information and Privacy Protection Model Act (Model Privacy Act)

The Model Privacy Act sets standards for transactions involving insurance for personal, family, or household needs. For purposes of the Model Privacy Act, an insurance transaction is one in which an insurer either services a policy or determines a person's eligibility for insurance coverage or benefits. Laws based on the Model Privacy Act apply to (1) insurers, (2) insurance agents, and (3) insurance support organizations that collect information about individuals and provide that information to insurers and insurance agents. Written notice is required when: the insurer (1) intends to collect information about the consumer and (2) will collect that information from sources other than public records or the consumer, such as from a medical professional or a consumer reporting agency. The Model Privacy Act also: - Limits the situations in which an insurer, insurance agent, or insurance support organization has the right to disclose personal or privileged information about consumers - Gives individuals whose personal information has been collected in connection with an insurance transaction the right to (1) have access to that information and (2) have the insurer amend or delete incorrect information from its records an ADVERSE underwriting decision is (1) a declination of coverage, (2) a termination of coverage, or (3) an offer to insure at higher than standard premium rates.

Model Regulation for Complaint Records to Be Maintained Pursuant to the NAIC Unfair Trade Practices Act

The Model Regulation describes minimum complaint record requirements and provides a sample record format. On at least an annual basis, an insurer must compile all of the complaints it received. The insurer may use this information to improve its practices and must provide the information to the insurance department when requested. The complaints must be classified by organizational function, line of insurance, reason for the complaint, how the complaint was handled, and state of origin of the complaint.

Formation of a Contract

The parties to a group insurance contract must (1) mutually assent to the contract, (2) exchange legally adequate consideration, (3) have contractual capacity, and (4) meet the lawful purpose requirement. With the exception of the lawful purpose requirement, these requirements are met in the same manner for both group and individual life insurance contracts.

Unit Investment Trust (UIT)

The separate accounts of most life insurers are registered with the SEC as unit investment trusts. These unit investment trusts own and hold assets for the participants in variable life insurance and variable annuity contracts. Each separate account may be divided into subaccounts. Each subaccount may invest in a different open-end investment company. The open-end investment companies in which the separate accounts are invested must be registered as investment companies.

Unfair Life, Accident and Health Claims Settlement Practices Model Regulation (Unfair Claims Settlement Model Regulation)

This Model Regulation sets minimum standards that insurers must meet in handling life and health insurance claims.

Group life insurance definition & group life ins. standard provisions model act

This model act defines the types of groups that are eligible for group life insurance and specifies standard provisions that group life insurance contracts must include. Note, however, that specific regulatory requirements vary by state. insurers cannot deliver a group life insurance contract unless the contract insures one of several specified types of eligible groups. For each type of eligible group, the model act (1) identifies the party or parties that are permitted to be the group policyholder and (2) imposes requirements concerning the individuals who are eligible for coverage under the contract.

Unfair Claims Settlement Practices Act.

This model law lists a number of actions that are unfair claims practices if committed by an insurer. To be considered an unfair claims practice the action must be committed (1) flagrantly and in conscious disregard of the law or (2) so frequently as to indicate a general business practice. Examples of unfair claims practices include: -Refusing to pay claims without conducting a reasonable investigation of those claims -Failing to affirm or deny coverage of claims within a reasonable time after completion of the claims investigation - Not attempting in good faith to settle claims promptly, fairly, and equitably when it is reasonably clear the insurer is liable to pay such claims

Variable Life Insurance Model Regulation.

This model regulation sets the qualifications an insurer must meet and the requirements variable life insurance policies must meet before the insurer can market these policies in the state. The regulation also requires the insurer to specify the standards of suitability it will follow when selling variable life insurance.

examination report

This report lists the problems found and recommends the steps the insurer should take to resolve the problems. The examiner-in-charge provides a copy of the report to the insurer and to the insurance department.

GLB uniform requirements

To meet the GLB uniform requirements, many states have established: -Standards that prospective insurance agents must meet before a license is issued -Continuing education requirements for licensed insurance agents (generally required every two years) - Ethics course requirements as part of continuing education requirements - Criteria to ensure that the insurance product being sold is appropriate for the customer As an alternative to these uniform requirements, the GLB Act allows the states to enact reciprocity laws. Reciprocity is an agreement between two states under which each state gives residents of the other state certain privileges.

Right to take action/ fines/ suspend

Typically, an insurer found to be in violation of state insurance laws must pay a fine. In more serious cases, the insurance department may suspend or revoke the insurer's certificate of authority. -If the insurance department suspends the insurer's certificate of authority, the insurer must cease operating. The insurance department may impose a suspension for a stated period of time or until the insurer corrects the violation. - If the insurance department revokes the insurer's certificate of authority, the certificate is no longer valid. The insurer cannot conduct business in the state until the insurance department issues a new certificate of authority.

Employee Retirement Income Security Act (ERISA)

a U.S. federal law designed to ensure that employee pension and welfare benefit plans meet certain minimum requirements to protect covered employees. In group life, debtors, creditors and the beneficiary entitled to receive the benefit payable following a group insured's death

USA Patriot Act (2001)

a U.S. federal law designed to prevent, detect, and prosecute terrorism and international money laundering. U.S. insurers that sell products with features that can be used to launder money must have an anti-money laundering program. Such products include: (1) individual annuities, (2) individual permanent life insurance, and(3) individual products that have a cash value or an investment feature. An insurer that sells any of these products must have an anti-money laundering program that includes: - A compliance officer responsible for ensuring that the program is implemented effectively - Policies, procedures, and internal controls to prevent the insurer's products from being used by money launderers - Ongoing training of appropriate persons within the company to ensure that they understand their responsibilities for implementing the program -A person or organization that does not work for the compliance officer to test and monitor the program to determine whether it (1) complies with the regulatory requirements and (2) functions as intended

Gramm-Leach-Bliley Act (GLBA)

a U.S. federal law that permits financial firms to affiliate in ways that result in a more competitive and integrated financial services industry. The GLB Act is also known as the Financial Services Modernization Act (FSMA). This law removed many regulatory barriers to affiliations between financial firms. However, affiliations must still comply with state laws governing holding company arrangements that include insurers. The GLB Act provides for the functional regulation of financial services. Functional regulation is oversees similar activities, regardless of which type of firm engages in the activity. In addition to permitting affiliations between financial firms, the GLB Act - Requires companies, including insurers, to maintain policies to confidentiality of customer information -Requires states to have uniform or reciprocal insurance agent licensing laws

Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)

a U.S. federal law that provides oversight of the financial services industry. The Dodd-Frank Act improves accountability and transparency in the financial services system and protects consumers from abusive practices. After the financial crisis of 2007-2010, this law was enacted to address the following solvency and market conduct issues: - Solvency. Some financial firms were so large and interconnected with other firms that their failure was deemed a systemic risk, which is a risk that might affect a nation's entire financial system. -Market conduct. Some financial services firms conducted business unfairly, unethically, and in ways that were not in the best interest of consumers. Mainly Targets banks

Financial Industry Regulatory Authority (FINRA)

a nonprofit organization of member firms and is responsible for regulating all securities firms doing business in the United States. FINRA is supervised by the SEC. Generally, two levels of qualification and registration are available: -A registered representative is a person who is associated with a FINRA member, engages in the securities business on behalf of the member by soliciting the sale of securities or by training securities salespeople, and has passed the applicable examination administered by FINRA. - A principal is generally an officer and/or manager of a FINRA member and is involved in the day-to-day operation and supervision of the securities business, has qualified as a registered representative, and has passed additional examinations administered by FINRA. We use the term registered person to refer to both registered representatives and principals. A person who solicits the sale of variable life insurance and/or variable annuities must be registered with FINRA and licensed by the state as an insurance agent.

regulatory jurisdiction

also known as the situs, for the contract. The regulatory jurisdiction determines the applicable state insurance requirements.

Federal Insurance Office (FIO)

an agency within the Treasury Department that is authorized to (1) identify areas with inadequate state regulation and (2) handle international insurance issues. The FIO's responsibilities include the following: - Monitoring the U.S. insurance industry (all except health insurance, some long-term care insurance, and crop insurance) - Helping the FSOC identify systemically risky insurers -Identifying areas where the states are not regulating the insurance industry adequately -Consulting with the states on matters of national or international importance - Coordinating international insurance matters and representing the United States in dealing with the International Association of Insurance Supervisors (IAIS), which we discuss later in this chapter

System for Electronic Rate and Form Filing (SERFF)

an electronic filing system maintained by the NAIC. Using SERFF, insurers can review each participating insurance department's policy filing requirements. The SERFF filing process is private. Only the insurer and the applicable state insurance department have access to the electronic file during the filing process. Once a form is approved, however, SERFF Filing Access (SFA) allows interested parties to view filings that the states have made available to the public.

nonaffiliated third party

an entity that is not related by common ownership or control with the financial firm.

Financial Stability Oversight Council (FSOC)

an independent agency that monitors the safety and stability of the U.S. financial system, identifies systemic risks, and coordinates regulatory responses to any threats to the system. The FSOC is a collaborative body chaired by the head of the Treasury Department. It consists of voting members and nonvoting members. +++FSOC members include federal financial regulators, state regulators, and an insurance expert. The FSOC has the authority to identify systemically important financial institutions (SIFIs), which are institutions—banks and nonbanks, including insurers—whose failure could pose a risk to the financial system. SIFIs are subject to more stringent regulatory standards than are other firms. These standards include stricter risk management, higher capital requirements, and additional regulatory examinations.

IRA

an individual retirement arrangement (IRA) is a type of retirement plan that allows a person with taxable compensation to put a stated amount of compensation into a savings or investment product that meets requirements specified in the federal tax laws, and thus receive favorable federal tax treatment. There are two types of individual retirement arrangements: -An individual retirement account is an individual retirement arrangement that takes the form of a trust or custodial account created by a bank, investment company, or similar organization. -An individual retirement annuity is an individual retirement arrangement funded by an annuity contract issued by an insurer. In the United States, more than half of all the money invested in individual annuities is placed in individual retirement annuities. Federal securities laws provide a framework for regulatory oversight of the securities industry. This framework includes: -Registration requirements - Regulation of the purchase and sale of publicly traded securities -Reporting and filing requirements -Dispute resolution requirements, periodic examinations of registered entities and individuals, and the right to take action against those who violate laws

Own Risk and Solvency Assessment (ORSA)

an insurer's self-appraisal of its current and future risks, the adequacy of its risk management program, and its current and future solvency positions.

National Council of Insurance Legislators (NCOIL)

an organization primarily made up of state legislators who are members of legislative insurance committees. NCOIL's goals are to -Educate legislators on insurance issues -Improve the quality of state insurance regulation - Make insurance more affordable - Work to ensure that the role of insurance regulation stays with the states NCOIL drafts model laws that the states may adopt.

Guaranty Association

an organization that operates to protect policyowners, insureds, beneficiaries, annuitants, payees, and assignees against losses that might result from a life or health insurer's impairment or insolvency. The guaranty association operates under the supervision of the insurance commissioner. -The guaranty association determines the difference between the insurer's assets and product-related liabilities, up to the limits in the guaranty association law. -The guaranty association then assesses the other insurers licensed in the state the amount needed to cover the failed insurer's obligations to its customers. All insurers must participate in a state's guaranty association to be licensed in a state. -An insurer's share of the total assessment is based on its percentage share of the total premiums written in the state, subject to certain limitations. State laws typically require insurers, at or prior to the time they deliver a policy, to give the policyowner a guaranty association disclaimer, which is a document that informs the policyowner of the guaranty association. This disclaimer also states that, in the event of the insurer's insolvency, the policyowner may not be totally protected by the guaranty association.

extraterritorial law

applies to that state's residents covered under a contract, regardless of the contract's state of jurisdiction.

McCarran-Ferguson Act (1945)

gives the states primary authority to regulate insurance as long as Congress finds such state regulation to be adequate. According to the McCarran-Ferguson Act, the regulation of insurance by the states is in the public interest. +++ in the US, insurance companies are subject to DUAL regulation +++ the Federal Government had the power to regulate interstate commerce.

Unclaimed Property

intangible personal property that has gone unclaimed by its rightful owner for a specified time, typically three to five years. There are many types of unclaimed property, including insurance policy proceeds and annuity values. All states have unclaimed property laws, but the laws vary by state.

Death Master File

is a database of information about people whose deaths were reported to the Social Security Administration.

Consumer Financial Protection Bureau (CFPB)

known as the Bureau of Consumer Financial Protection, is an independent bureau within the Federal Reserve System that is charged with establishing rules for banks, mortgage companies, and other lenders and financial firms. The CFPB rules are designed to allow consumers to see the costs and features of financial products and services. The CFPB's responsibilities include the following: -Enforcing federal consumer financial protection laws -Restricting unfair, deceptive, or abusive acts or practices -Investigating consumer complaints - Promoting financial education for consumers -Researching consumer behaviors - Monitoring financial markets for new risks to consumers -Enforcing laws that prohibit discrimination and other unfair treatment in consumer finance

Policy form cevelopment

nearly all of the states have laws that specify standard provisions that insurers must include in individual life insurance policies. insurers must include most of these provisions in: -Annuity contracts, although specific requirements for annuity contracts vary depending on the features of the annuity -Group policies, although specific requirements for individual and group policies may vary

Financial Condition Examiners Handbook

provides procedures for examining an insurer's accounting records and financial statements. Financial condition examinations assess an insurer's financial soundness in two broad matters. First, the examination determines if the insurer's accounting records are accurate and if the insurer is operating on a lawful basis. Second, the examination determines whether the insurer's financial and business profiles are free of solvency hazards. The NAIC Model Law on Examinations requires that the report be filed with the state insurance department no later than 60 days after completion of the examination. The insurance department forwards a copy of the report to the insurer. The insurer has a specified time, not to exceed 30 days, in which to submit a written response. The insurance department reviews the insurer's response and then enters an order. This order may set forth one of the following actions: -Adopt the examination report as initially filed or after making modifications - Call for a confidential hearing to obtain additional information and then, within 20 days of the end of the hearing, the insurance department enters an order adopting the report as it was filed or with changes -Reject the examination report and direct the examiners to reopen the examination to gain additional information; after gaining this information, the examiners prepare another report and file it with the insurance department for review. LEAD STATE maintains a coordination plan, works with all the other states to implement the plan, and schedules all the examinations. In addition, the Lead State names an Exam Facilitator for each examination.

Risk-Based Capital (RBC) for Insurers Model Act

provides state regulators with information used to identify potentially impaired insurers. -Prescribes a formula for insurers to use to calculate RBC ratios -Requires insurers to file an annual report of their RBC levels with the state insurance department and the NAIC -Provides standards for regulators to use when analyzing RBC ratios -Sets forth procedures for regulators to use in the event that an insurer's RBC results fall below specified standards

Receivership and receiver

receivership (also known as conservatorship), the state takes control of and administers the insurer's assets and liabilities. The insurance commissioner, or someone acting on the commissioner's behalf, acts as the receiver. A receiver (or conservator) is the person responsible for formulating a plan to conserve and control the insurer's assets and for making sure that the insurer's obligations to customers are met to the extent possible. REceivership can have TWO outcomes: -Rehabilitation. Impaired insurers generally are first placed into rehabilitation. In a rehabilitation, the insurer continues to exist as a corporation while the insurance department assesses in more detail the insurer's finances. If it appears that the financial condition of the insurer can be repaired, the insurance department may look for an investor to invest capital in the insurer. However, investors seldom are willing to participate in a rehabilitation. ++In the receivership outcome known as rehabilitation, the insurer continues to exist as a corporation, and the state insurance department may try to find an investor to invest capital in the insurer if it appears that the financial condition of the insurer can be repaired. -Liquidation. If the insurer cannot be rehabilitated, the receiver places the insurer into liquidation. The receiver then can transfer all of the insurer's business, including its reserve liabilities and assets, to other insurers. Alternatively, the receiver can sell the insurer's assets and terminate the insurer's business. In either case, the insurer ceases to exist.

Insurance Data Security Model Law

requires insurers and other entities licensed by state insurance departments to (1) develop, implement, and maintain an information security program; (2) investigate all cybersecurity events; and (3) notify the state insurance commissioner of such events. the NAIC has taken the following actions: - Published 12 principles to provide guidance to regulators and insurers to (1) protect consumer information and (2) prevent and respond to data breaches - Issued the NAIC Roadmap for Cybersecurity Consumer Protections (also known as the Cybersecurity Bill of Rights) so that consumers know what to expect from insurers with respect to (1) protecting consumer information and (2) preventing and responding to data breaches - Updated the NAIC Financial Condition Examiners Handbook to include cybersecurity procedures; at the time of this writing, the NAIC also was considering updating the Market Regulation Handbook to include cybersecurity procedures

illustration

sales aids that are subject to the Model Advertisements Regulation. Most states have laws or regulations based on the NAIC Life Insurance Illustrations Model Regulation, which sets rules that insurers and insurance agents must follow when using illustrations in life insurance sales. The goals of this model regulation are to (1) ensure that illustrations do not mislead consumers and (2) make illustrations easier for consumers to understand.

Regulation Best interest

seeks to enhance the quality and transparency of individual investors' relationships with broker-dealers and investment advisers. Reg BI requires broker-dealers and investment advisers to act in the best interest of individual investors when making a recommendation of any securities transaction or investment strategy involving securities. It also requires broker-dealers and investment advisers to provide a Customer Relationship Summary (CRS) to potential clients to disclose services offered, the nature of the relationship, fees and costs, and conflicts of interest. The goal of Reg BI is to enhance the broker-dealer standard of conduct beyond suitability obligations and ensure that a financial professional does not put its financial interests ahead of the interests of a customer when making recommendations.

Licensing Requirements

state insurance laws require insurers to obtain a license in each jurisdiction where they do business. Similarly, state insurance laws require individuals who market and sell insurance to obtain a license in each jurisdiction where they do business.

Balance Sheet

summarizes, as of a specified date, what the company owns (assets), what the company owes (liabilities), and the owners' investment (owners' equity). Assets are all things of value owned by the company. Examples of assets are cash and investments. Liabilities are the company's debts and future obligations. Most of an insurer's liabilities consist of reserves, that is, the company's need to pay policy benefits as they come due. Owners' equity is the difference between the company's assets and liabilities. It represents the owners' financial interest in the company. Owners' equity consists of capital and surplus. Capital represents investments by owners, usually through the purchase of the company's stock. Surplus represents the total net profits earned from a company's operations and left to accumulate. Because mutual and fraternal insurers do not issue stock, they have a balance only in their surplus account; this balance is sometimes called policyholder surplus. From an insurance regulator's point of view, a balance sheet addresses the question, "As of this date, how solvent is the insurer?" The relationship between the various components of a balance sheet are measures of a company's solvency. For instance, a company with too little capital and surplus compared to its liabilities may come under regulatory supervision.

Securities and Exchange Commission (SEC)

the federal agency responsible for administering federal securities laws. The SEC has authority to make rules and regulations that govern the purchase and sale of securities. This authority applies to sales that are made publicly through a stock exchange as well as over-the counter sales. A stock exchange is an organized marketplace where specific types of securities, such as bonds and certain types of stocks, are bought and sold by members of the exchange. Sales of stocks that are not traded on a stock exchange are referred to as over-the-counter (OTC) sales. For instance, the sale of a variable annuity is an over-the-counter sale of a security. As noted above, SEC rules classify variable annuities as securities. However, if an annuity meets the following conditions, it is not a security and is not subject to federal securities regulation: -The insurer assumes the investment risk of the contract. -The contract is not marketed primarily as an investment. - The contract is issued by a corporation that is subject to supervision by a state agency or a state officer, such as the insurance commissioner. SEC rules refer explicitly to annuities, but do not refer to life insurance. However, the SEC's view is that variable life insurance is also a security.

Contributory Plan

the insureds pay all or part of the premiums for their coverage. eligible group members must be given the choice of whether to participate, and they must authorize the payment of their premium contributions, typically as a payroll deduction. Insurers commonly require group policyholders to pay at least part of the premiums for group life insurance. group insurers often have a minimum participation requirement to guard against antiselection. Insurers usually require that at least 75 percent of eligible group members participate in a contributory plan.

Suitability

the principle that the sale of a financial product must be consistent with a customer's investment objectives and financial situation. Note that the NAIC and some states also have established suitability requirements for variable life insurance and annuities.

RegTech

the technologies that help regulators and insurers manage regulation and compliance. Regulators rely on technology to reduce operating costs and improve productivity, accuracy, and the effectiveness of key activities. NAIC plans to: -Develop online resources for consumers to learn about insurance -Explore ways to engage and inform state regulators on emerging trends in technology