Worksheetsprin of Insurance chapter 8
Total questions: 42
Worksheet time: 21mins
When did local stock companies and mutual protection associations begin to form?
Early 1700s
Early 1800s
Late 1800s
Early 1900s
What was a result of large conflagrations in property insurance?
Low concentration of risk
Stable pricing
High concentration of risk
Decreased company failures
What were life insurers notorious for?
Low expenses
Strong finances
Abusive sales practices
High reputation
What was the significance of the Paul versus Virginia case in 1868?
Insurance was ruled as interstate commerce
Federal government had the right to regulate insurance
Insurance was not interstate commerce
Insurance was exempt from state regulation
When was the National Association of Insurance Commissioners (NAIC) formed?
1868
1871
1944
1900
What does the McCarran-Ferguson Act (1945) establish regarding the insurance industry?
Federal regulation of all insurance practices
State regulation and taxation of the insurance industry
Complete deregulation of the insurance industry
International regulation of insurance companies
Which act changed federal law to allow banks, insurers, and investment firms to compete outside their core area?
The McCarran-Ferguson Act
The Financial Modernization Act
The Dodd-Frank Act
The Securities Act
Who regulates the sale of securities?
The Federal Reserve
State insurance departments
The Securities and Exchange Commission (SEC)
State and federal bank agencies
What is one of the criticisms of state regulation of the insurance industry?
It is too competitive
It is too lenient on small insurers
It no longer needs broad antitrust exemption
It prevents federal regulation
What was the purpose of the Dodd-Frank Wall Street Reform and Consumer Act (2010)?
To deregulate the financial services industry
To address abuses in the financial services industry
To eliminate state insurance departments
To increase competition among small insurers
Which of the following is NOT a principal method used to regulate insurers?
Legislation through state and federal laws
Court decisions
State insurance departments
International treaties
What did the McCarran-Ferguson Act (1945) determine regarding the regulation of insurers?
Regulation should occur at the federal level.
Regulation should occur at the state level.
Regulation should be managed by private companies.
Regulation should be eliminated.
What are the Statutory Accounting Principles (SAP) used for in the insurance industry?
To prepare an insurance firm's marketing strategies.
To prepare an insurance firm's financial statements.
To prepare an insurance firm's employee guidelines.
To prepare an insurance firm's customer service protocols.
Who oversees the insurers that function in their respective states?
The federal government.
The insurance commissioner/department.
Private insurance companies.
The NAIC.
What is a domestic insurer?
An insurer chartered by a foreign country.
An insurer domiciled in the state.
An insurer chartered by another state.
An insurer operating internationally.
What is one of the key reasons behind insurance regulation?
To increase insurance company profits.
To maintain insurer solvency.
To reduce competition.
To limit consumer access to insurance.
What must assets be sufficient to offset according to financial regulations for insurers?
Liabilities
Revenues
Profits
Expenses
What are admitted assets for an insurer?
Assets shown on the statutory balance sheet
Assets hidden from the balance sheet
Assets not related to insurance
Assets only in cash form
Which of the following is NOT a reason for insurer insolvencies?
Inadequate reserves for claims
Rapid growth and inadequate surplus
Excessive profits
Bad investments
What is one of the principal methods of ensuring solvency for insurers?
Risk-based capital standards
Increasing premiums
Reducing employee salaries
Expanding market share
What does the RBC ratio stand for?
Risk-Based Capital Ratio
Revenue-Based Calculation Ratio
Reserve Balance Calculation Ratio
Return-Based Capital Ratio
How is the RBC ratio calculated?
Total adjusted capital divided by risk-based capital
Total liabilities divided by total assets
Total revenue divided by total expenses
Total profits divided by total investments
What is the Kenney Ratio used for in the insurance industry?
Measuring customer satisfaction
Solvency measure for Property/Casualty insurers
Calculating insurance premiums
Determining investment strategies
How is the Kenney Ratio defined?
Ratio of liabilities to assets
Ratio of premiums to surplus
Ratio of claims to investments
Ratio of expenses to revenue
What is the ideal maximum threshold for the Kenney Ratio?
1 or 2
2 or 3
3 or 4
4 or 5
What must insurers meet according to risk-based capital (RBC) standards?
A certain amount of liabilities
A certain amount of capital
A certain amount of revenue
A certain amount of expenses
What happens when a state takes over an insurance company?
The company is dissolved
The state insurance department assumes control
The company is sold to another insurer
The company continues operations as usual
What do guaranty funds, laws, and associations do?
Increase insurance premiums
Pay the claims of policyowners of insolvent insurers
Reduce the number of insurance claims
Provide investment advice to insurers
What is the primary role of the guaranty program when an insurer is deemed completely insolvent by the state?
To provide loans to the insurer
To take over the role of insurer for any claims
To close the insurer permanently
To increase premiums for all policyholders
What is the major method used to raise funds to pay unpaid claims in the guaranty system?
Pre-assessment method
Post-assessment method
Direct funding method
Voluntary contribution method
What is one potential pitfall of the guaranty program?
All lines of business are covered in every state
There is an unlimited amount of funding available
Payments can take an extended period of time to process
Insurers are not required to participate
What is the purpose of investment regulations for insurers?
To maximize profits for insurers
To prevent unsound investments that threaten solvency
To encourage high-risk investments
To eliminate the need for dividends
Which of the following is a form of rate regulation for property and casualty insurance?
Direct approval law
Use-and-file law
No regulation required
Premium-free law
Which of the following is generally not regulated by the states, but states have the right to step in if warranted?
Large commercial account rates
Life insurance and annuity rates
Health insurance rates
Auto insurance rates
What is the primary purpose of policy form regulation by state insurance commissioners?
To increase insurance company profits
To simplify insurance contracts
To protect the public from misleading, deceptive, and unfair provisions
To reduce the number of insurance policies
What is required of all agents and brokers according to agent/broker licensure laws?
They must have a college degree
They must be licensed
They must work for a single insurance company
They must have a minimum of 10 years of experience
What does the term "twisting" refer to in insurance practices?
Offering a discount for early policy renewal
Inducing a policy owner to drop an existing policy for one with no economic benefit
Providing additional coverage at no extra cost
Misrepresenting the terms of a policy
Which of the following is included in market conduct regulation practices?
Investment strategies
Sales of insurance policies
Employee training programs
Office management procedures
What are regulators concerned about regarding certain industry practices?
Increased competition among insurers
Adverse effects on policyholders, beneficiaries, claimants, and insurance consumers
Rising costs of insurance premiums
Lack of innovation in insurance products
Which of the following is a concern related to insurance industry practices?
Sale of suitable insurance products
Misrepresentation of coverage
Decrease in sales pressure
Fair and non-discriminatory rates
What is a retaliatory tax?
A tax on domestic insurers within the state
A tax on out-of-state insurers operating within the state’s jurisdiction
A tax on all insurance claims
A tax on insurance department websites
What do most state insurance departments have for handling consumer complaints?
A marketing division
A complaint division
A financial advisory division
A legal division
