Insurance Regulation

Question 1

Regulation

Answer 1

The supervision and control of an activity for a specific purpose by an
entity that is not directly involved in, or party to, the activity.

Question 2

Producer

Answer 2

Any of several kinds of insurance personnel who place insurance
business with insurers and who represent either insurers or insureds, or
both.

Question 3

Legislation

Answer 3

Law enacted by a legislative body.

Question 4

Jurisdiction

Answer 4

The geographic area over which authority extends.

Question 5

Common-law system

Answer 5

A legal system in which the body of law is derived more from court
decisions as opposed to statutes or constitutions.

Question 6

Civil law system

Answer 6

A basic legal system that relies on scholarly interpretations of codes
and constitutions rather than court interpretations of prior court decisions,
as in common-law systems.

Question 7

Precedent

Answer 7

A court decision that serves as an example, or rule, for later, similar
cases.

Question 8

Stare decisis

Answer 8

The principle that lower courts must follow precedents set by higher
courts.

Question 9

Administrative agency

Answer 9

An official governmental body that is empowered with the authority
to implement and administer particular legislative acts.

Question 10

Administrative law

Answer 10

The statutory laws that grant power to administrative agencies to act
and the body of law that is created by administrative agencies themselves.

Question 11

Loss exposure

Answer 11

Any condition or situation that presents a possibility of loss, whether
or not an actual loss occurs.

Question 12

Misrepresentation

Answer 12

A false statement of a material fact on which a party relies.

Question 13

Twisting

Answer 13

An illegal misrepresentation that convinces a customer to cancel one
policy and purchase another policy that is detrimental to the customer.

Question 14

Rebating

Answer 14

The practice of giving a portion of the producer’s commission or
some other financial advantage to an individual as an inducement to
purchase the policy.

Question 15

Domestic insurer

Answer 15

An insurer doing business in the jurisdiction in which it is incorporated.

Question 16

Foreign insurer

Answer 16

An insurer licensed to operate in a jurisdiction but incorporated in
another jurisdiction.

Question 17

Alien insurer

Answer 17

An insurer domiciled in a country other than the one in which it
seeks to conduct, or is conducting, business.

Question 18

Insurance agent

Answer 18

A legal representative of one or more insurers for which the representative
has a contractual agreement to sell insurance.

Question 19

Broker

Answer 19

An independent producer who represents insurance customers.

Question 20

Rate

Answer 20

The price per exposure unit for insurance coverage.

Question 21

Classification system

Answer 21

A system developed for rating purposes to group similar loss exposures
into homogeneous classes to avoid adverse selection.

Question 22

Predictive modeling

Answer 22

A process in which historical data based on behaviors and events
are blended with multiple variables and used to construct models of
anticipated future outcomes.

Question 23

Actuarial rate indication

Answer 23

The proposed rate change derived by actuarial analysis prior to company
strategic influences.

Question 24

Adverse selection

Answer 24

In general, the tendency for people with the greatest probability of
loss to be the ones most likely to purchase insurance.

Question 25

Experience rating

Answer 25

A rating plan that adjusts the premium for the current policy period
to recognize the loss experience of the insured organization during
past policy periods.

Question 26

Individual risk premium modification plan (IRPM)

Answer 26

A rating plan that allows underwriters to modify property premiums
based upon specific risk characteristics not reflected in the class rate.

Question 27

Retrospective rating

Answer 27

A ratemaking technique that adjusts the insured’s premium for the
current policy period based on the insured’s loss experience during the
current period; paid losses or incurred losses may be used to determine
loss experience.

Question 28

Loss costs

Answer 28

The portion of the rate that covers projected claim payments and loss
adjusting expenses.

Question 29

Statistical plan

Answer 29

A formal set of directions for recording and reporting insurance premiums,
exposures, losses, and sometimes loss expenses, to a statistical
agent.

Question 30

Loss development factor

Answer 30

An actuarial means for adjusting losses to reflect future growth in
claims due to both increases in the incurred amount for reported
losses and incurred but not reported (IBNR) losses.

Question 31

Trend analysis

Answer 31

An analysis that identifies patterns in past data and then projects
these patterns into the future.

Question 32

Relativity

Answer 32

A numerical estimate of losses in one classification relative to losses
in a base classification.

Question 33

Prior approval

Answer 33

A type of insurance rate regulation in which rates and supporting
rules must be filed with and approved by the insurance regulator
before they can be used.

Question 34

Deemer provision

Answer 34

A law stating that if an insurance regulator does not approve of an
insurer’s filing within a specified time, the filing is deemed approved.

Question 35

File-and-use

Answer 35

A type of insurance rate regulation in which the insurer must file
rates and supporting rules with the insurance regulator within a
specific number of days prior to their use, and if not disapproved by
the regulator during that review period, the rates can then be used
immediately without specific approval

Question 36

Use-and-file

Answer 36

A type of insurance rate regulation in which the rates and supporting
rules must be filed with the insurance regulator within a specified
period after they are put into use.

Question 37

Open competition (no-file law)

Answer 37

A type of insurance rate regulation that allows insurers to develop and
use rates and supporting rules without having to file with or receive
approval from the insurance regulator.

Question 38

Flex rating

Answer 38

A type of insurance rate regulation that requires insurers to obtain
prior regulatory approval only if new rates exceed a certain percentage
above or below previously filed rates.

Question 39

Return on equity (ROE)

Answer 39

A profitability ratio expressed as a percentage by dividing a company’s
net income by its net worth (book value). Depending on the context,
net worth is sometimes called shareholders’ equity, owners’ equity, or
policyholders’ surplus.

Question 40

Hard market

Answer 40

Market conditions in which insurer competition diminishes, buyers
have difficulty finding coverage, premiums increase, and insurer profitability
rises.

Question 41

Soft market

Answer 41

Market conditions in which insurer competition is intense and is indicated
by widely available coverage, lower premiums, and decreased
insurer profitability.