Chapter 5: Regulation and Evaluation of Insurers

Question 1

Self-Regulation

Answer 1

Insurers and Associations

Question 2

Government Regulation

Answer 2

State and Federal

1. Legislative Action (makes laws)
2. Administrative Action (applies and enforces laws)
3. Court Action (interprets laws)

Question 3

What Does the State Regulate

Answer 3

Formation and licensing of insurers
Supervision of insurer operations
Rehabilitation and liquidation of insurers

Question 4

Prior Approval Law

Rating Laws

Answer 4

Requires that proposed rates be filed with insurance commissioner

Question 5

File and Use Law

Rating Laws

Answer 5

Immediate use of filed rates without commissioner’s affirmative approval. May disapprove within set time frame

Question 6

Use and File Law

Rating Laws

Answer 6

Rates filed with commissioner within a specified time after they are first used

Question 7

Flex Rating Law

Rating Laws

Answer 7

No regulatory approval is needed if new rate represents a change of less that stated percentage

Question 8

Open Competition/Expense Limitation Law

Rating Laws

Answer 8

Competition sets rates in absence of regulation

Question 9

Legal Reserve in Life Insurance

Answer 9

Amount that is sufficient to enable insurer to meet its expected policy obligations (premium payments plus interest earnings)

Question 10

Unearned Premium Reserve in P & L Insurance

Answer 10

Amount that an insurer must have to pay a return premium to all policyowners if their policies are canceled prior to expiration.

Question 11

Loss Reserve in P & L Insurance

Answer 11

Amount that must be present to cover losses that have already occurred but have not yet been paid or settled.

Question 12

Rebating

Answer 12

Return of any part of premium to the policyowner as a price-cutting sales inducement

Question 13

Twisting

Answer 13

Agent inducement of policyowner to cancel current contract and open new contract based on unfair comparison of contracts

Question 14

Misappropriation

Answer 14

Agent unlawfully keeping funds belonging to others

Question 15

Commingling of Funds

Answer 15

Agent mixes insured and insurers funds with personal funds

Question 16

Misleading Advertising

Answer 16

Require full and fair information in advertisements

Question 17

Unauthorized Entity

Answer 17

Insurance company that has not gained approval in state where producer want to sell insurance.

Question 18

Criteria for Selecting Insurance Company

Answer 18

1. Financial strength
2. Attitude concerning claims payment
3. Lines of coverage offered
4. Service before and after claim
5. Underwriting standards
6. Cost of coverage

Question 19

Criteria for Choosing an Agent or Broker

Answer 19

1. Knowledge and ability
2. Willingness
3. Integrity and character
4. Representation