Industry Oversight and Regulation (Chapter 1)

Question 1

How is the Insurance industry Regulated

Answer 1

By the state with minimal federal oversight

Question 2

1869 Paul v. Virginia

Answer 2

Insurance transactions crossing state lines are NOT interstate commerce

Question 3

1905 The Armstrong Investigation Act

Answer 3

Gave Authority to states to regulate insurance

Question 4

1944 U.S. v. South Eastern Underwriters

Answer 4

Ruled that insurance transactions crossing state lines ARE interstate commerce

Question 5

1945 The McCarran Ferguson Act

Answer 5

Federal Govt. has authority to regulate the insurance industry but would not if the insurance industry was regulated effectively on the state level.
**Minimum penalty of a producer who has obtained personal information about a client without having a legitimate reason to do so is a fine of $10,000

Question 6

1970 Fair Reporting Act

Answer 6

Gives individuals privacy protection and fair and accurate credit reporting. Companies must notify applicants if a credit check will be made on them.
**Maximum penalty of a producer who has obtained consumer information reports under false pretenses is a fine of $5,000

Question 7

National Association of insurance commissioners (NAIC)

Answer 7

Composed of Commissioners from all 50 states

Responsible for recommending laws and recommendations

Responsible for the Advertising code and the Unfair Trade Practices Act

Question 8

Advertising Code

Answer 8

Specifies certain words and phrases that are considered misleading are not to be used in advertising of any kind

Question 9

Unfair Trade Practices Act

Answer 9

Gives CEO the power to investigate insurance companies and producers to impose penalties

Question 10

NAIFA (National Association of Insurance and Financial Advisors)
And
NAHU (National Association of Health Underwriters)

Answer 10

Comprised of life and health insurance professionals

Created a code of Ethics detailing the expectations of agents in their duties toward clients.

Question 11

Some of the Standards of Ethics

List 7, Explain

Answer 11

1. Selling to needs - determine consumer needs and which policy fits their needs
2. Suitability of recommended products - assess the correlation between a recommended product and the consumer’s needs
3. Full and accurate disclosure- inform the consumer of the benefits and limitations of recommended products.
4. Documentation - document each clients meeting and transaction
5. Client Services - know that the sale doesn’t mark the end of the relationship.
6. Buyers guide - deliver a buyers guide to the consumer
7. Policy Summary - Helps consumers evaluate suitability of recommended product.

Question 12

Reserves

Answer 12

the accounting measure of an insurer’s future obligations to it’s policyholders. They are set aside for the payment of future claims

Question 13

Liquidity

Answer 13

An insurer’s ability to make unpredictable payouts to policyowners

Question 14

Guaranty Associations

Answer 14

Established by states to support insurers and protect consumers in case an insurer becomes insolvent. (Safety net)

Question 15

Independent Rating System

Answer 15

Credit rating agencies that rate or grade the financial strength and stability of insurers