Regulatory and Ethical Frameworks Flashcards
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Read the first 7 Regulatory and Ethical Frameworks flashcards as text
The NAIC's primary role in U.S. insurance regulation is to:
Answer: Develop model laws and coordinate state regulatory activities
The NAIC is a standard-setting and regulatory support organization that creates model laws for state adoption and promotes regulatory consistency.
An underwriter discovers mid-term that an insured has materially misrepresented facts on the application. The insurer's most appropriate remedy is typically:
Answer: Voiding the policy ab initio
Material misrepresentation allows the insurer to void the policy from inception (ab initio) as though it never existed.
Which of the following scenarios best illustrates the concept of 'adverse selection' in underwriting?
Answer: High-risk individuals disproportionately seeking insurance coverage
Adverse selection occurs when those with higher-than-average risk are more likely to purchase insurance, distorting the risk pool.
Risk-Based Capital (RBC) requirements are designed primarily to ensure that insurers:
Answer: Maintain sufficient capital relative to their risk exposure
RBC requirements mandate that insurers hold capital proportional to the risks they underwrite, protecting policyholders from insolvency.
Under professional ethics standards, an underwriter who learns of a colleague committing fraud should first:
Answer: Report it through appropriate internal compliance channels
Professional ethics require reporting suspected fraud through established internal channels such as compliance, legal, or management.
The 'prior approval' rate regulation system differs from 'file-and-use' in that:
Answer: Rates cannot be used until regulators formally approve them
Under prior approval, insurers must obtain explicit regulatory approval before implementing new rates, unlike file-and-use where immediate implementation is allowed.
Which ethical duty requires underwriters to keep applicant and insured information private and share it only as legally permitted?
Answer: Duty of confidentiality
The duty of confidentiality obligates underwriters to protect sensitive applicant data and only disclose it under legally authorized circumstances.