Porter Chp 5

Question 1

Purpose of insurance regulation:

Answer 1

Assure that the future performance promise, to pay a claim, will be fulfilled as needed (Protects the public interest)

Question 2

Briefly describe 4 Types of Filing Laws:

Answer 2

1. Prior approval - Insurance rates and coverages must be approved by the state insurance department before they can be used in the state
2. File and use - Insurer must file insurance rates or coverages with the state insurance department but can then use them immediately
3. Use and file - Insurer can use the rate or coverage it wants, provided the insurer files the rate or coverage within a specified period after it is put into use
4. No file - Insurer not required to make a filing of the rate or coverage

Question 3

List some of the most common reasons for rate or coverage disapproval:

Answer 3

• Not in the public interest
• Illegal
• Unfairly discriminatory
• Other - excessive, inadequate or not meeting minimum standards

Question 4

Describe the basic purposes of a financial examination:

Answer 4

• Detect as early as possible those insurers in financial trouble and/or engaging in unlawful and improper activities
• Develop the information needed for timely, appropriate regulatory action

Question 5

What is reviewed in the financial examination:

Answer 5

Insurer’s statistical statements, accounting procedures, financial statements, financial controls, management practices, and investment procedures

Question 6

Briefly describe a market conduct examination.

Answer 6

Review of the ways in which insurers do business - advertising, soliciting, policy issuing, claims handling

Question 7

2 reasons why only a few states have historically had fraud departments:

Answer 7

1. Restraints on budgets

2. Lack of insurance fraud laws

Question 8

How did the 1994 Omnibus Crime Control and Safe Streets Act address insurance fraud:

Answer 8

• Made it illegal to defraud, loot, or plunder an insurer

* Established a multi-state approach to anti fraud activity

Question 9

Briefly describe a “Receiver”

Answer 9

Disinterested person/business appointed to receive, protect, and account for money or other property due

Question 10

Briefly describe a “Receivership”

Answer 10

Type of bankruptcy an insurer enters into when a receiver is appointed to manage the insurer and its property

Question 11

Briefly describe a “Rehabilitation”

Answer 11

Process of reorganizing an insurer’s financial affairs so it can continue to exist as a financial entity, with creditors satisfying their claims from its future earnings

Question 12

Briefly describe a “Liquidation”

Answer 12

Bankruptcy proceeding in which a bankrupt organization does not have enough assets to pay all creditors, and the creditors are prioritized and paid according to the types of their claims

Question 13

List potential grounds for rehabilitation:

Answer 13

• Liabilities exceed assets
• Insurance company refused to submit books, records, accounts or affairs to insurance department
• Insurer willfully violates its charter or any other state law