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FL 220 License Exam > Chapter 1 - General Lines > Flashcards

Chapter 1 - General Lines Flashcards

1
Q

McCarran - Ferguson Act of 1945

A

Determined that the Federal government can not regulate insurance in areas over which states have the authority to do so. Government insurers step in when private insurers are unable to - catastrophe or unpredictability of risk

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2
Q

What does the NAIC do?

A

Provides recommendations for state insurance regulators
Promotes uniformity among states
Has no legal authority to enact or enforce laws

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3
Q

Who established the Federal Insurance Office?

A

Dodd-Frank Wall Street Reform and Consumer Protection Act

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4
Q

What does the legislative branch do?

A

Writes and passes state insurance laws, or statutes, to protect the insuring public

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5
Q

What is judicial branch responsible for?

A

Interpreting and determining the constitutionality of the statutes

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6
Q

What is the role of the executive branch?

A

Enforce the existing statutes that have been put in place

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7
Q

Define Stock Insurance Company

A

Owned by stock holders

Issue non-participating policies

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8
Q

Define Mutual Insurance Company

A

Owned by policyholders/members

Issue participating policies

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9
Q

Define Reciprocal Insurance Company

A

Group owned insurer whose main activity is risk sharing

Members are known as subscribers and assumes a part of the risk

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10
Q

Define Lloyds of London

A

Not an Insurance Company
Consists of groups of underwriters called Syndicates
Example - insuring JLo’s legs

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11
Q

Define Fraternal Benefit Societies

A

Non-profit basis

Social organizations that engage in charitable activities that provide life and health insurance to their members

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12
Q

Define Risk Retention Groups

A

Group-owned that primarily assumes and spreads the liability risks of its members
Owned by policyholders
Ex - theme parks

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13
Q

Define Residual Markets

A

Private coverage of last resort for businesses and individuals who have been rejected by voluntary market insurers

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14
Q

What do Reinsurance Companies do?

A

Assume all or a portion of a risk from a primary or ceding (giving up) insurance company.

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15
Q

What are the types of Reinsurance (2)? Define them.

A

Treaty Agreements

Facultative Agreements

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16
Q

Define Treaty Agreements (Reinsurance)

A

Reinsurance that covers all risks contained in the lines of business automatically

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17
Q

Define Facultative Agreements (Reinsurance)

A

Reinsurance that allows ceding companies and reinsurance companies the opportunity to negotiate coverage for individual risks
+

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18
Q

What is the purpose of Financial Rating Services?

A

Rating the financial stability of insurance companies.

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19
Q

What is a domestic, foreign, alien insurer?

A

Domestic - Within the state
Foreign - another state or US territories
Alien - Outside of US and territories

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20
Q

Admitted vs Non-admitted

A

Admitted - Authorized to do business in the state

Non-admitted (Unauthorized) - authorization was declined or they did not apply.

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21
Q

What type of Insurance can Non-Admitted insurers provide?

A

Surplus and Excess lines when it cannot be obtained from admitted carriers

22
Q

What is the purpose of the Actuarial Department?

A

Gather information used in rates making. Sets premium rates.

23
Q

What is a direct writing system?

A

Where the Insurer owns the accounts and the agent is an employee for the insurer.

24
Q

What is a career agency system?

A

Agents are recruited by a General Agent who is contracted with the insurance company

25
What is Personal Producing General Agent?
Does not have career agents and sells insurance for insurers it is contracted with
26
What is the law of agency?
The agent or producer acts on behalf of the principal or insurer. The producer binds the actions of the insurer
27
List out the three types of authority a producer has
Express Implied Apparent
28
Define Express Authority
It is written. Ex - The producers binding authority if written in contract.
29
Define Implied Authority
Authority the public assumes the producer has. Ex - agents provide quotes and accept premiums. It is assumed.
30
Define Apparent Authority
When the Agent exceeds authority expressed (written) in the agency contract. Ex - accepting premium on a lapsed policy.
31
What is a broker?
Negotiates insurance contracts with insurers on behalf of the applicant.
32
What is a Producer (Agent)?
A person appointed by the insurance company to represent it and present policies on its behalf.
33
What is the Fair Credit Reporting Act?
Protects consumer privacy and lets the applicant know they have a right to view their report and challenge it. The Insurer is not responsible for correcting inaccuracies.
34
What is the Financial Anti-Terrorism Act (Patriot Act)?
Forces these financial/non-financial institutions to record keep and report to the government specific financial transactions and customer financial records
35
What is the Fraud and False Statements (Fraudulent Insurance Act)?
The NAIC in 2001 adopted legislation for the prevention and enforcement of insurance fraud. Each state enacted its own Fraudulent Insurance Act.
36
What is the Merchant Marine Act of 1920 (the Jones Act)?
Allows insured seamen to make claims for injuries suffered during the course of employment since Workers Comp laws do not apply to seamen.
37
What is the Motor Carrier Regulatory and Modernization Act (the Motor Carrier Act of 1980)?
It allows motor carriers to set their own rates and must have evidence of insurance, bonded, or self insured. It deregulated the trucking industry by not allowing any entity to set rates for motor carriers.
38
What is the Gramm-Leach Biley Act?
Allows banks, security companies, and insurance companies to merge (repealed parts of the Glass - Steagall Act). Also established the Financial Privacy Rule and Safeguards Rule - in other words, companies are required to have a privacy notice and explain where their information is going or how it is being used and must give the option to the consumer to opt out.
39
What is the Terrorism Risk Insurance Act and its Extensions of 2005 and 2007?
Created in response to 9/11. Temporary program that allows the federal government to share in terrorism losses with private insurers. Only applies to commercial and casualty. Personal, life, and health insurance is not covered.
40
What is the Violent Crime Control and Law Enforcement Act of 1994?
The act makes it a felony to engage in the business of insurance after being convicted of a state or federal crime involving dishonesty or breach of trust.
41
List the two types of risk?
Speculative Risk | Pure Risk
42
Define Speculative Risk
Risk where there is a chance for loss, gain, or neither. Ex - Gambling
43
Define Pure Risk
Risk where there is no change of gain
44
List the three types of hazards
Physical, Moral, Morale
45
Define a Physical Hazard
A physical condition that increases the risk. Ex - Flammable material stored near a furnace
46
Define a Moral Hazard
Dishonest tendencies that increase risk Ex - Insured burns down their home to collect insurance payout
47
Define a Morale Hazard
Attitude that increases risk. Ex - Carelessness of leaving your car unlocked.
48
List the ways of managing risk?
STARR Sharing - investing in insurance with other large groups Transfer - transferring the risk from consumer to an insurance company (Nationwide). Avoidance - eliminate the risk Reduction - minimize the chance of loss Retention - self insure or only insure risks that threaten financial stability.
49
What is the law of large numbers?
As the units in a group increase, the more likely it is to predict a particular outcome
50
What is the principle of indemnity?
Restoring the insured to the same financial or economic condition that existed prior to the loss. Insured should NOT profit.
51
List the Underwriting Factors (4)
Nature of the risk Hazards that are present Claims History Other factors that depend upon the type of risk being insured

FL 220 License Exam (14 decks)

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