Chapter 8

Question 1

what is government regulation of insurance ?

Answer 1

state and federal

Question 2

what is the National Association of Insurance Commissioners?

Answer 2

provides expertise, data and analysis for insurance commissioners to effectively regulate the industry and protect consumers

Question 3

when was the NAIC founded?

Answer 3

in 1871

Question 4

what is governed by the chief insurance regulators from the 50 states, DC and five US territories to coordinate regulation of multi-state insurers?

Answer 4

the NAIC

Question 5

what did the McCarran-Ferguson Act of 1945 do?

Answer 5

established that insurance should be regulated and taxed by the states

Question 6

what did the McCarran-Ferguson Act of 1945 say about anti-trust laws?

Answer 6

anti trust laws do not apply to insurance (with some exceptions)

Question 7

what act eliminated barriers between insurers and banks?

Answer 7

Financial Modernization Act of 1999 (Gramm-Leach-Bliley Act)

Question 8

what act said insurers can have banking operations and banks can have insurance operations?

Answer 8

Financial Modernization Act of 1999

Question 9

what act led to several mergers and acquisitions (Travelers and Citigroup)?

Answer 9

Financial Moderation Act of 1999

Question 10

what act is frequently cited as a contributor to the financial crisis?

Answer 10

Financial Modernization Act of 1999

Question 11

what did the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 do?

Answer 11

established general federal oversight of the insurance industry

Question 12

what act created the Financial Stability Oversight Council (FSOC)?

Answer 12

Dodd-Frank Wall

Question 13

who has the authority to treat systemic risk?

Answer 13

financial stability oversight council

Question 14

who can classify non-bank financial companies as “systemically important financial institutions”?

Answer 14

financial stability oversight group

Question 15

what are the goals of insurance regulation?

Answer 15

-maintain insurer solvency
-educate consumers
-ensure reasonable rates
-make insurance available

Question 16

what are worthless if the insurer goes bankrupt?

Answer 16

insurance contracts

Question 17

why do we educate consumers?

Answer 17

prevent unethical insurers or agents from taking advantage of consumers

Question 18

why do we make insurance available?

Answer 18

to have fair access to insurance requirements (FAIR Plans)

Question 19

what areas are regulated?

Answer 19

-formation and licensing of insurers
-solvency regualtion
-rate regulation
-policy forms
-sales practices and consumer protection
-taxation of insurers

Question 20

what is a domestic insurer?

Answer 20

domiciled in the state

Question 21

what is a foreign insurer?

Answer 21

charter (domiciled) in another state, but licensed to operate in the state

Question 22

what is an alien insurer?

Answer 22

chartered in a foreign country, but licensed to operate in state

Question 23

what must be sufficient to offset liabilities ?

Answer 23

assets

Question 24

what is a safety net for if an insurance company goes bankrupt?

Answer 24

state guaranty funds

Question 25

what is prior-approval rate regulation?

Answer 25

rates must be filed and approved by the state before being used

Question 26

what is file and use rate regulation ?

Answer 26

rates must be filed with the state, but can be used immediately

Question 27

what are other methods to rate regulation?

Answer 27

modified-prior-approval, use and file, state made rates and no filing required

Question 28

what must be filed with the state department of insurance ?

Answer 28

policy forms

Question 29

what is the purpose of policy forms?

Answer 29

to protect consumers form misleading, deceptive or unfair provisions

Question 30

what do all states require?

Answer 30

licensing of brokers and agents
continuing education for brokers and agents

Question 31

what unfair trade practices are prohibited?

Answer 31

twisting and rebating

Question 32

what is twisting?

Answer 32

inducement of a policyholder to drop an existing policy and replace it with a new one that provides little or no economic benefit to the client

Question 33

what is rebating?

Answer 33

practice of giving an individual a premium reduction or some other financial advantage not stated as an inducement to purchase the policy

Question 34

what do insurers pay on gross premiums received from policyholders?

Answer 34

state tax

Question 35

what is market conduct?

Answer 35

refers to the marketing practices of insurers and agents that involves interaction with insureds. claimants or consumers

Question 36

what are examples of market conduct?

Answer 36

sales of insurance policies, advertising of insurance products, underwriting and rating

Question 37

who conducts examinations of insurers?

Answer 37

state departments of insurance

Question 38

what does market conduct examinations protect consumers from?

Answer 38

-sale of unsuitable insurance products
-misrepresentation of coverage
-excessive sales pressure
-rates that are unfairly discriminatory
-denial of legitimate claims
-improper termination of policies

Question 39

what are arguments for federal regulation?

Answer 39

-decrease compliance costs
-increase competition
-increase innovation
-more effective negotiation of international insurance agreements
-more effective treatment of systemic risk

Question 40

what are the arguments for state regulations?

Answer 40

-Needs of each state are different
-Federal regulation in historically inefficient
-Transition to federal would be costly and require dual regulation for a short time
-The national association of insurance commissioners already advocates for uniformity
-Insurers can innovate by experimenting in different states
-Unknown consequences of federal regulation