Level 1 chapter 4

Question 1

McCarran-Ferguson Act.

Answer 1

gives states the power to regulate insurance

Question 2

What does State Insurance Departments do?

Answer 2

Ensuring the financial solvency of insurance companies operating in the state

Managing the licensing process for both insurance producers and insurance companies

Providing educational resources about insurance topics for consumers

Maintaining fair sales and claims practices throughout the local insurance market

Question 3

insurance commissioner.

Answer 3

Managing the overall insurance department

Establishing priorities for regulatory focus

Enforcing the state’s insurance rules and laws

In many cases, conducting hearings to evaluate and either approve or reject proposed insurance rates and products

Question 4

What is the National Association of Insurance Commissioners. (NAIC)

Answer 4

It’s a non-governmental and non-profit group.

Its members are the insurance commissioners from all U.S. states, Washington D.C., and U.S. territories.

The NAIC doesn’t have legal power itself, but its members do in their own states.

Question 5

Twisting

Answer 5

when producers encourage consumers to change insurers without any legitimate benefit.

Question 6

Churning

Answer 6

is similar to twisting but involves convincing consumers to unnecessarily replace policies within the same insurance company.

Question 7

Baiting and switching

Answer 7

involves using false advertising to attract potential customers, then steering them toward entirely different products once they engage.

Financial Misconduct

Question 8

Commingling of funds

Answer 8

happens when collected premiums are improperly held in the same account as an agency’s operating funds or a producer’s personal account.

Question 9

Conversion

Answer 9

is straightforward theft — when collected premiums are stolen rather than forwarded to the insurer.

Question 10

Fraud

Answer 10

involves the deliberate misrepresentation of material facts to wrongfully obtain money from an insurance company.

Question 11

Unfair discrimination

Answer 11

occurs when consumers pay higher premiums or are denied coverage for reasons unrelated to their data-supported risk profiles.

Question 12

Unfair claims practices

Answer 12

involve insurers wrongfully refusing to pay claimants the contractual amounts they’re entitled to receive.

Question 13

Libel

Answer 13

consists of making false and defamatory statements about competitors or others in written form.

Question 14

Slander

Answer 14

similar to libel but involves spoken false and defamatory statements rather than written ones.

Question 15

What are Policy Reserves

Answer 15

Funds insurance companies set aside to pay future claims, calculated using actuarial principles

Question 16

What does it mean when an insurance company is solvent?

Answer 16

It has enough assets to cover all its liabilities.

Question 17

How do regulators monitor an insurer’s solvency?

Answer 17

Through annual financial reports and periodic audits.

Question 18

guaranty funds

Answer 18

State-run funds that help pay claims when an insurance company goes bankrupt

Question 19

private rating organizations

Answer 19

Evaluate an insurer’s ability to pay claims and give them a financial strength grade.

Question 20

What are two limitations of guaranty funds?

Answer 20

1) Payout limits, 2) Long wait times due to liquidation processes.

Question 21

What types of insurance usually have stricter rate regulation?

Answer 21

Health, property, and auto liability insurance.

Question 22

What types of insurance usually have more flexible rate rules?

Answer 22

Life insurance and annuities.

Question 23

Open Rating

Answer 23

Insurers set their own rates, and the state only steps in under extreme circumstances.

Question 24

State-Made or Bureau Rating

Answer 24

Rates are set by the state or a panel of experts, not by insurers.

Question 25

File and Use rating

Answer 25

Insurers file proposed rates with the state, and the rates take effect unless the state objects within a short time.

Question 26

Prior Approval rating

Answer 26

Insurers must get official approval from the state before using the rates.

Question 27

Flex Rating

Answer 27

Insurers can use new rates unless the change exceeds a set threshold (like 15%), which would then require approval.

Question 28

resident license

Answer 28

A license from a producer's home state

Question 29

non-resident licenses

Answer 29

licenses from other states

Question 30

1033 waiver

Answer 30

a special exemption granted by a state insurance commissioner that allows individuals with felony convictions involving fraud or dishonesty to legally work in the insurance industry. Without it, they are prohibited from doing so under federal law.

Question 31

Gramm-Leach-Bliley Act (GLBA)

Answer 31

A federal law that protects consumers’ personal financial information and applies to financial institutions, including insurers.

Question 32

What does the Financial Privacy Rule under GLBA do

Answer 32

It governs how personal financial information is collected and shared, and it allows consumers to opt out of certain data sharing.

Question 33

What is the purpose of the Safeguards Rule under GLBA?

Answer 33

It requires financial institutions to implement security programs to protect customer information—even if they don’t plan to share it.

Question 34

What is pretexting, and how does GLBA address it?

Answer 34

Pretexting is tricking someone to get their private info. GLBA makes this illegal to protect people from scams and identity theft.Pretexting is obtaining personal info under false pretenses. GLBA prohibits this to protect consumers from fraud or identity theft.

Question 35

Under GLBA, what are insurers and agents sometimes required to provide?

Answer 35

Privacy notices that explain how personal information is collected, used, and protected.

Question 36

The CAN-SPAM Act

Answer 36

prohibits deceptive headers and subject lines in commercial emails. Additionally, the CAN-SPAM Act requires that all email advertising contain the business's physical address. This ensures accountability and transparency from the sender. Finally, businesses must provide recipients with a free method to opt out of future messages. This gives individuals control over what appears in their inbox.

Question 37

Do Not Call Registry

Answer 37

helps consumers avoid unwanted phone solicitations. Businesses must check this list before making phone calls for solicitation purposes. When a phone number appears on the Do Not Call Registry, most businesses cannot legally contact that number for sales purposes.

Question 38

Exceptions for the do not call registry

Answer 38

Businesses with a current business relationship with the consumer Businesses that had a business relationship with the consumer within the past 18 months Businesses contacted by consumers who inquired about services (or submitted an application) within the past three months Businesses that have received prior written consent from the consumer

Question 39

Penalty for providing false financial information to a regulator (without causing public harm)

Answer 39

Up to ten years

Question 40

Penalty for providing false financial information to a regulator and causing public harm

Answer 40

Up to 15 years

Question 41

Who can be contacted despite the Do-Not-Call Registry

Answer 41

Someone who bought something within 18 months or inquired about products/services within 3 months