CIA Legal & Regulatory Compliance in Insurance 2 — Questions and Answers
Question 1: Under the McCarran-Ferguson Act, which level of government has primary authority to regulate the business of insurance?
- Federal government
- State governments (Correct answer)
- Municipal governments
- International bodies
Correct answer: State governments
The McCarran-Ferguson Act of 1945 grants states the primary authority to regulate the business of insurance, unless federal law specifically relates to insurance.
Question 2: An insurer that operates without a certificate of authority in a state where it is not licensed is known as a/an:
- Domestic insurer
- Alien insurer
- Unauthorized insurer (Correct answer)
- Surplus lines insurer
Correct answer: Unauthorized insurer
An unauthorized insurer operates without a certificate of authority in a given state, which generally makes it illegal for agents to place business with that insurer.
Question 3: Which regulatory document defines the rights and obligations between an insurer and policyholder and must be filed with the state insurance department?
- Certificate of authority
- Policy form (Correct answer)
- Annual statement
- Premium rate schedule
Correct answer: Policy form
Policy forms must be filed with and often approved by the state insurance department to ensure they comply with state law and are not unfair to consumers.
Question 4: What is the primary purpose of an insurance company's annual statement filed with the NAIC?
- To advertise products to consumers
- To disclose financial condition and solvency to regulators (Correct answer)
- To apply for new lines of business
- To report agent licensing violations
Correct answer: To disclose financial condition and solvency to regulators
The annual statement (also called the convention blank) provides regulators with detailed financial data to assess an insurer's solvency and financial stability.
Question 5: A 'cease and desist' order issued by a state insurance commissioner requires an insurer to:
- File updated rate schedules immediately
- Stop engaging in a specified illegal or improper practice (Correct answer)
- Submit to a market conduct examination
- Increase its policyholder surplus
Correct answer: Stop engaging in a specified illegal or improper practice
A cease and desist order is a regulatory enforcement tool that commands an insurer to immediately stop a specified illegal, unfair, or deceptive practice.
Question 6: Which act requires insurers to maintain procedures that protect non-public personal financial information of customers?
- Gramm-Leach-Bliley Act (Correct answer)
- Dodd-Frank Act
- Sherman Antitrust Act
- ERISA
Correct answer: Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act (GLBA) requires financial institutions, including insurers, to safeguard customers' non-public personal information and provide privacy notices.
Question 7: When a state insurance department conducts a 'market conduct examination,' its primary focus is on:
- The insurer's investment portfolio performance
- How the insurer treats policyholders and claimants in practice (Correct answer)
- The insurer's reinsurance arrangements
- The insurer's corporate governance structure
Correct answer: How the insurer treats policyholders and claimants in practice
Market conduct examinations evaluate whether an insurer's business practices—including claims handling, underwriting, and marketing—comply with state laws and treat consumers fairly.
CIA Legal & Regulatory Compliance in Insurance 2
Under the McCarran-Ferguson Act, which level of government has primary authority to regulate the business of insurance?