industry oversight and regulations (laws)

Question 1

the U.S. Supreme Court ruled that insurance transactions crossing state lines are not interstate commerce

Answer 1

1869 Paul v. Virginia

Question 2

gave the authority to the states to regulate insurance.

Answer 2

1905 The Armstrong Investigation Act

Question 3

ruled that insurance transactions crossing state lines are interstate commerce and are subject to federal regulation.
- Thus, many federal laws conflicted with existing state laws.
- However, this decision did not affect the power of states to regulate insurance.

Answer 3

1944 United States v. South-Eastern Underwriters Association

Question 4

states that while the federal government has the authority to regulate the insurance industry, it would not exercise its right if the insurance industry was regulated effectively and adequately on the state level.
- Under this Act, the minimum penalty for a producer who has obtained personal information about a client without having a legitimate reason to do so is a fine of $10,000.

Answer 4

1945 The McCarran Ferguson Act

Question 5

provides individuals with privacy protection and fair and accurate credit reporting.
- Insurance companies are required to notify applicants if a credit check will be made on them.
- Under this Act, the maximum penalty for a producer who has obtained Consumer Information Reports under false pretenses is a fine of $5,000

Answer 5

1970 Fair Credit Reporting Act

Question 6

This law repealed the Glass-Steagall Act; this allows Banks, Retail Brokerages and Insurance companies to enter each other’s line of business.

Answer 6

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

Question 7

as it relates to the insurance industry, is designed to detect and deter terrorists and their funding by imposing anti-money laundering requirements on brokerage firms and financial institutions.

Answer 7

2001 USA PATRIOT ACT (Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act)

Question 8

Insurance calls are not exempt from the no-not-call registry.

Answer 8

2003 National Do Not Call Registry

Question 9

often shortened to the Affordable Care Act (ACA), represents one of the most significant regulatory overhauls and expansions of coverage in U.S. history.

Answer 9

2010 Patient Protection and Affordable Care Act (PPACA)

Question 10

is an organization composed of insurance commissioners from all 50 states, the District of Columbia and the 4 US territories.
- They are responsible for recommending appropriate laws and regulations.
- They are responsible for the creation of the Advertising Code, the Unfair Trade Practices Act, and the Medicare Supplement Insurance Minimum Standards Model Act.

Answer 10

National Association of Insurance Commissioners (NAIC)

Question 11

1. To encourage uniformity in state insurance laws and regulations
2. To assist in the administration of those laws and regulations by promoting efficiency
3. To protect the interest of policyowners and consumers
4. To preserve state regulation of the insurance business

Answer 11

The NAIC has four broad objectives:

Question 12

the code specifies certain words and phrases that are considered misleading and are not to be used in advertising of any kind.

Answer 12

Advertising Code

Question 13

gives a chief financial officer the power to investigate insurance companies and producers to impose penalties.
- In addition to that, the act gives officers the authority to seek a court injunction to restrain insurers from using any methods believed to be unfair.

Answer 13

Unfair Trade Practices Act

Question 14

Members of these organizations are life and health agents dedicated to supporting the industry and advancing the quality of service provided by insurance professionals.
- These organizations created a Code of Ethics detailing the expectations of agents in their duties toward clients.

Answer 14

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

Question 15

an ethical agent must be able to assess the correlation between a recommended product and the consumer’s needs.

Answer 15

Suitability of recommended products

Question 16

the larger the amount of exposures that are combined into a group, the more certainty there is to the amount of loss incurred in any given period

Answer 16

law of large numbers

Question 17

Insurers must minimize adverse selection, which is defined as the tendency for poorer-than-average risks to seek out insurance.
- For example, a person who takes 12 prescriptions is a poor risk. If an insurer cannot compensate poor risks with better-than-average risks, then its loss experience will increase and its ability to pay claims may be compromised.

Answer 17

Adverse Selection

Question 18

the law of large numbers allows: (2)

Answer 18

• Prediction of individual and group losses based on past experience
• An increased degree of accuracy in predicting losses in large groups

Question 19

statements that are guaranteed to be literally true

Answer 19

warranty

Question 20

statements made by applicants that are substantially true to the best of their knowledge, but not warrantied as exact in every detail

Answer 20

representation

Question 21

a nonprofit trade organization that maintains medical information about individuals.
- Information is used by life and health insurers. This helps insurance companies from adverse selection by applicants, as it detects misrepresentations, helps identify fraudulent information, and controls the cost of insurance.
- Information released about a proposed insured may be released to the proposed insured’s physician.
- Information received about a proposed insured may be released to the proposed insured’s physician.
- An insurance company would NOT notify if an application is declined.

Answer 21

Medical Information Bureau (MIB)

Question 22

• This law sets forth standards for funding, participating, vesting, disclosure, and tax treatment of retirement plans.
• This Act improves the pension system and encourages employees to increase contributions to their employer-sponsored retirement plans.
• The provisions of the act have two main goals: addressing employer’s pension funds and assisting employees who are saving for retirement.

Answer 22

federal pension act of 2006

Question 23

All of the following are types of insurance policy exchanges that can be made without current taxation:

• The exchange of a life insurance policy for an annuity
• An annuity exchanged for another annuity contract
• A life insurance policy exchanged for another life policy

Answer 23

1035 exchanges