Chapter 3

Question 1

what is the name of the area of insurance operations that handles legal matters such as contracts and legal disputes?

Answer 1

legal function

Question 2

what does the compliance function do?

Answer 2

performs a wide range of tasks to make sure that company operations follow policies and procedures as well as the laws and regulations of all jurisdictions.

Question 3

who is generally in charge of an insurance company’s legal department?

Answer 3

general counsel or chief consel

Question 4

who is the chief compliance officer?

Answer 4

is responsible for overseeing and managing the company’s compliance with regulatory requirements and internal policies and procedures.

Question 5

Insurance companies are usually organized as corporations to provide more permanence and stability. Define corporation

Answer 5

a legal entity, separate from its owners, that is created by the authority of a government and continues beyond the death of any or all of its owners.
owners personal liability is limited.

Question 6

some jurisdictions only give business authority to operate for a specific number of years, give an example.

Answer 6

philipines, has a 50 year lifetime, after which time it is renewable for another 50 years

Question 7

some juridictions require all corporations to have a minimum amount of capital. give an example.

Answer 7

in US, insurance companies must meet such minimum capital requirements, but other businesses do not have to meet such requirements.

Question 8

what is a company limited by shares?

Answer 8

found in UK and india, its where the owner’s liability is limited to the investments they made when they purchased shares of the company’s stock.

Question 9

what is a company limited by guarantee?

Answer 9

found in UK and india. Its where a company whose owners agree to pay the obligations of the company up to a stated amount if the company is liquidated.

Question 10

what is a certificate of authority?

Answer 10

a document that grants the insurer legal authority to conduct an insurance business in the specified jurisdictions.

Question 11

a corporation that operates in more than one country- is known as a multinatoinal corporation. what legal issues will it face?

Answer 11

it must comply with the laws of its country of domicile and also the laws and regulations of each country in which it conducts business.

Question 12

insures typically begin operations in foreign countries in 3 ways. name them

Answer 12

1. incorporating a business in the foreign country, which operates as a subsidiary of the insurer.
2. opening a branch office in the foreign country that is properly registered with the foreign government
3. entering into a joint venture with a local insurer in the foreign country.

Question 13

what is a joint venture?

Answer 13

an arrangement between two otherwise independent businesses that agree to undertake a specific project together for a specified period time.

Question 14

what process is used when a mutual insurer may consider changing to a stock form of ownership?

Answer 14

demutualization

Question 15

what is the process used when a stock insurer may wish to convert to a mutual company?

Answer 15

mutualization

Question 16

If a demutalization or mutualization were to occur, what does the legal department advise the company board of directors about? (4 things)

Answer 16

1. differences in the regulations of stock companies and mutual companies
2. the legal issues involved in changing the company’s corporate form,
3. the structure that would be most beneficial to the insurer
4. the best way to accomplish a change in corporate form.

Question 17

What are 7 specific responsibilities of the legal department in terms of other insurance departments?

Answer 17

claims- policy language interpretation, litigations of contested claims, settle conflicting claimants
CS- rights of custotmers, privacy, issues affecting CS delivary
HR- employement laws,
Investments- securities laws and investment contracts, real estate assests
products- contract and tax laws, working, documentations and disclorures; obtrains from insurance regilators legal approval for new or modified products
distribution/marketing- laws and angency laws, producer contracts, training, communications
u/w- rights of applicants, privacy,

Question 18

what is a lawsuit?

Answer 18

an action brought before a court of law by a party claiming that they have been harmed in some way by another party.

Question 19

what is a litigation?

Answer 19

the process or act of presenting the dispute to a court of law for a resolution.

Question 20

Attorneys who handle litigation for an insurance company, whether company employee, or outside counsel, are responsible for what? (7 things)

Answer 20

1. initiating or responding to a lawsuit
2. researching the facts of a case
3. taking statements and depositions from involved parties.
4. consulting with company employees before they testify in court.
5. researching relevant court cases.
6. hiring expect testimony, if needed
7. representing the insurer in all aspect of the litigation process, including correspondance and court appearances.

Question 21

What are ADR (alternative dispute resolution) methids?

Answer 21

formal or informal negotiations to resolve the dispute, rather then going to court.

Question 22

Name dont define, the two common methods of ADR.

Answer 22

1. mediation, sometimes called conciliation,

2. arbitration

Question 23

What is mediation, in terms of ADR.

Answer 23

Process in which an impartial third party known as a mediator facilitates negotiations between the parties in an effort to create a mutually agreeable resolution of the dispute.

Question 24

what is arbitration, in terms of ADR?

Answer 24

process in which impartial third parties, known as arbitrators, evaluate the facts in the dispute and render a decision that usually in binding on the parties. Appeals of arbritators’ decisions are generally possible only if the arbitration was done improperly.

Question 25

Name 9 typical compliance activites

Answer 25

1. disseminating regulatory information to employees
2. overseeing the licensing, training, and conduct of producers
3. approving advertisements and sale literature
4. protecting customer provacry and confidentiality
5. coordinating internal and external audits
6. coordinating market conduct examinations
7. overseeing proper handling and resolution of customer complaints.
8. working with regulatory agencies to demonstrate the company’s compliant with applicable laws
9. managing a fraud prevention unit.

Question 26

how can a regulatory compliance management program be effective?

Answer 26

compliance personal must be knowledgable about the regulatory requirements of all jurisdictions in which the compnay operates.
they must also monitor the regulatory environment for changes that might impact insurers operations.

Question 27

Why must a an insurers regulatory compliance management program include monitoring?

Answer 27

1. ensure quick response to problems/issues
2. identifies training needs of employees,
3. improves the qualify of compliance procedures

Question 28

what is an internal audit?

Answer 28

its an examination of a company’s records, policies, and procedures that is conducted by a person who works for the insurer.

Question 29

what is an external audit

Answer 29

audits conducted by parties not associated with the insurance company. This is required to be completed d/t an insurers market conduct.

Question 30

what is a market conduct examination?

Answer 30

a formal investigation of an insurer by one or more state insurance departments. the pirpose is to determine whether the insurer’s market conduct (non financial operations) are in compliance.

Question 31

how oftern do insurers undergo market conduct examinations?

Answer 31

some may examine all operations with in state every 2-3 yrs, others investigate once theres been a specific complaint about an insurer’s market conduct .

Question 32

what does NAIC stand for, and what do they do?

Answer 32

National association of insurance commissioners, a private, nonprofit association in the US that promotes unifority of state insurance regulations.

Question 33

Name two type of market conduct examinations, and what are they designed to do

Answer 33

target and comprehensive examinations. both are designed to ensure the insurer has standard in place for the activity being examined, and the standard comply with applicable regulatory requirements, as well as the activity being examined is carried out according to established standards.