ACE Regulatory Compliance & Law 2 — Questions and Answers
Question 1: Under the McCarran-Ferguson Act, who has primary authority to regulate the insurance industry?
- Federal government
- State governments (Correct answer)
- NAIC
- Department of Commerce
Correct answer: State governments
McCarran-Ferguson Act of 1945 affirmed that states, not the federal government, have primary authority to regulate insurance.
Question 2: Which ACORD standard data element is used to uniquely identify an insurance company in electronic transactions?
- NAIC company code (Correct answer)
- FEIN number
- AM Best rating code
- ISO company identifier
Correct answer: NAIC company code
The NAIC company code is the standard identifier used to uniquely identify insurers in ACORD electronic data transactions.
Question 3: What is 'rebating' in the context of insurance regulatory compliance?
- Refunding a portion of the premium as an inducement to purchase (Correct answer)
- Canceling a policy mid-term with a refund
- Reducing premiums for group policyholders
- Returning unearned premium at cancellation
Correct answer: Refunding a portion of the premium as an inducement to purchase
Rebating is the illegal practice of offering a portion of the commission or premium as an inducement to purchase insurance.
Question 4: A certificate of insurance issued via ACORD 25 is best described as:
- A legally binding contract between insurer and certificate holder
- Evidence of insurance coverage at a point in time (Correct answer)
- A guarantee that coverage will be maintained
- An endorsement modifying the underlying policy
Correct answer: Evidence of insurance coverage at a point in time
ACORD 25 is evidence of insurance only and does not confer rights, amend coverage, or guarantee future coverage.
Question 5: Which federal law requires financial institutions, including insurers, to implement customer information security programs?
- Gramm-Leach-Bliley Act (Correct answer)
- Dodd-Frank Act
- Sarbanes-Oxley Act
- Fair Credit Reporting Act
Correct answer: Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act (GLBA) mandates that financial institutions protect the security and confidentiality of customer nonpublic personal information.
Question 6: Under most state insurance codes, 'unfair discrimination' in underwriting refers to:
- Charging different rates for the same risk class without actuarial justification (Correct answer)
- Denying coverage to high-risk applicants
- Requiring higher deductibles in urban areas
- Limiting coverage amounts for certain occupations
Correct answer: Charging different rates for the same risk class without actuarial justification
Unfair discrimination means charging different rates or offering different terms to individuals in the same risk class without a valid actuarial basis.
Question 7: Which entity must an insurance producer typically notify when they change their principal place of business to another state?
- The NAIC directly
- Their home state insurance department (Correct answer)
- The federal insurance office
- The producer's E&O insurer
Correct answer: Their home state insurance department
Producers must notify their home state insurance department of address changes, which may affect license status and reciprocal licensing in other states.
ACE Regulatory Compliance & Law 2
Under the McCarran-Ferguson Act, who has primary authority to regulate the insurance industry?