Insurance Fundamentals

Question 1

National Association of Insurance Commissioners. (NAIC)

Answer 1

consists of ALL state and territorial insurance commissioners & regulators. Promotes uniformity among states. Provides resources for research and legislative & regulatory recommendations / interpretations for State insurance regulators. This entity has NO legal authority to enact or enforce laws.

Question 2

Federal Insurance Office (FIO)

Answer 2

Established by Dodd-Frank Wall Street Reform + Consumer Protection Act. An office that monitors insurance industry, identifying issues and gaps in state regulation, as well as monitoring affordable access - traditionally for underserved communities/consumers. (Minorities, low/moderate income persons) FIO is NOT a regulator or supervisor, rather it provides education support networking and lobbying

Question 3

Insurance is regulated mostly at the ________ level

Answer 3

State.

Question 4

The State Legislative branch….

Answer 4

writes and passes insurance laws and statues that protect the insuring public.

Question 5

The State Judicial branch…

Answer 5

is responsible for interpreting the laws and statutes made by the Legislative Branch.

Question 6

The State Executive branch…

Answer 6

enforces existing statutes put into place.

Question 7

The State’s Commissioner (Director, or Superintendent of Insurance) is appointed or elected for …

Answer 7

issuing rules and regulations which assist in enforcing statues. If elected, they’re elected by the State Governer

Question 8

Federal Regulation of Insurance is…

Answer 8

limited. The Federal Governments role is to provide regulatory oversight impacting insurance practices. Congress created agencies to provide this service, as well as passes bills to create more congruency.
( PPACA, ADEA, PDA, Patriot Act, GINA, etc)

Question 9

Stock Insurance Company

Answer 9

is owned by stockholders. Directors and officers are elected. They issue Non-Participating policies (meaning that the policyholder does not receive any dividends)

Question 10

Mutual Insurance Company

Answer 10

is owned by Policyholders, also known as Members. The members elect a Board of Trustees/Directors, who put in place a management team which carries out the company mission. Issue Participating Policies, meaning if there is excess investment earnings, favorable mortality, or expense savings, then the dividends are given to policy holders as non-taxable.

Question 11

Reciprocal Insurance Company

Answer 11

is owned by a group whose main activity is Risk Sharing. This is an UNINCORPORATED insurance company, formed by individuals, business corps, and firms that exchange insurance on one another. The exchange is affected through an Attorney-in-fact, who is not required to be licensed for insurance.

Question 12

Lloyd’s of London

Answer 12

is not an insurance company but consists of a group of underwriters (called Syndicates) that each specialize in a particular type of risk.

Question 13

Risk Retention Groups

Answer 13

are group-owned insurers that primarily assume and spread the liability risks of it’s members. Licensed in at least one state, but can insure in others. Group must be comprised of large number in a homogenous unit. Membership is limited to risks of similar liability exposure (i.e. amusement parks, go-cart tracks, water slides) and have sufficient assets to meet loss obligation

Question 14

Reinsurance Companies issue 2 types of agreements

Answer 14

Treaty and Facultative

Question 15

Facultative Reinsurance Agreements are…

Answer 15

what allows the company to reject coverage for individual risks, or price them higher in accordance to their nature.

Question 16

Treaty Reinsurance Agreements are…

Answer 16

automatically accepting of all risks, as presented by ceding insurer.

Question 17

The Financial Rating Services are…

Answer 17

Independent service providers who assess the stability of an insurance company through evaluating and rating the insurers ability to pay claims, as well as their financial health.

Question 18

Financial Rating Services benefit…

Answer 18

The producer. It is the producers responsibility to place business with sound insurers, and using their rating system is best practice.

Question 19

Surplus Lines Insurance…

Answer 19

finds insurance policies when it cannot be found through regular admitted insurers. They cannot be utilized simply to obtain a lower premium on policy, they are reserved for those who could not obtain insurance otherwise.

Question 20

Law of Agency defines….

Answer 20

the relationship between an Insurer (Principal) and a producer operating as it’s agent. Law of agency covers powers and authorities given to agents in order to represent their Principal Insurer.

Question 21

Express, Implied, Apparent

Answer 21

types of authority under Law of Agency.
Express is written in the contract;
Implied is not expressed, but is necessary to carry out the duties and expressed authorities;
Apparent is authority which is given per the conduct of the Agent, giving the general expression that the Agent is permitted to act on behalf of Principal Insurer (i.e. using company letterhead and rate books)

Question 22

Fair Credit Reporting Act

Answer 22

protects consumer privacy and protects public from overly intrusive data collection practices. Ensures that the data collected is accurate, confidential, relevant, and will be used for a specific legal purpose