Property And Casualty Insurance License State Regulations and Ethics 1 — Questions and Answers
Question 1: Which organization accredits state insurance departments and promotes uniformity in insurance regulation?
- Federal Insurance Office (FIO)
- National Association of Insurance Commissioners (NAIC) (Correct answer)
- Insurance Information Institute (III)
- American Council of Life Insurers (ACLI)
Correct answer: National Association of Insurance Commissioners (NAIC)
The NAIC is the organization of state insurance regulators that develops model laws, regulations, and best practices to promote uniformity and consumer protection across all states.
Question 2: What is the purpose of a state's 'guaranty fund'?
- To guarantee insurers a profit margin each year
- To pay claims of policyholders when their insurer becomes insolvent (Correct answer)
- To provide low-cost insurance to high-risk individuals
- To fund state insurance department operations
Correct answer: To pay claims of policyholders when their insurer becomes insolvent
State guaranty funds protect policyholders by paying covered claims up to statutory limits when a licensed (admitted) insurer becomes insolvent.
Question 3: What does the 'McCarran-Ferguson Act' of 1945 establish?
- Federal regulation of all insurance companies
- That the regulation and taxation of insurance is a matter for the states, not the federal government (Correct answer)
- Minimum capital requirements for insurers
- A federal guaranty fund for insolvent insurers
Correct answer: That the regulation and taxation of insurance is a matter for the states, not the federal government
McCarran-Ferguson confirms that insurance regulation is primarily a state function, exempting the insurance industry from most federal antitrust laws to the extent it is regulated by state law.
Question 4: What is a 'cease and desist' order from a state insurance department?
- An order requiring an insurer to stop selling new policies temporarily
- An official order requiring an individual or company to stop an unlawful insurance practice (Correct answer)
- An order directing an insurer to pay a disputed claim
- An order suspending an insurer's surplus lines authorization
Correct answer: An official order requiring an individual or company to stop an unlawful insurance practice
A cease and desist order is an administrative enforcement tool that directs a licensee to immediately stop an illegal or unfair practice.
Question 5: What is 'twisting' in insurance sales?
- Misrepresenting policy terms to keep an existing client from canceling
- Inducing a policyholder to lapse, cancel, or surrender a policy through misrepresentation in order to replace it with another policy (Correct answer)
- Selling insurance to a family member at a discounted rate
- Altering a claim form after submission
Correct answer: Inducing a policyholder to lapse, cancel, or surrender a policy through misrepresentation in order to replace it with another policy
Twisting is an illegal and unethical practice where an agent uses false or misleading comparisons to convince a client to replace an existing policy with a new one that benefits the agent more than the client.
Question 6: What is 'rebating' in insurance?
- Returning a portion of the premium or providing other valuable consideration not listed in the policy as an inducement to purchase insurance (Correct answer)
- Offering a discount for multi-policy holders
- Reducing premiums based on favorable loss history
- Returning premium when a policy is cancelled mid-term
Correct answer: Returning a portion of the premium or providing other valuable consideration not listed in the policy as an inducement to purchase insurance
Rebating is the illegal practice of giving a customer something of value (such as cash, gifts, or premium discounts) not specified in the policy as an incentive to buy coverage.
Property And Casualty Insurance License State Regulations and Ethics 1
Which organization accredits state insurance departments and promotes uniformity in insurance regulation?