CU Legal & Regulatory Compliance 2 — Questions and Answers
Question 1: Which federal law requires insurers to provide consumers with a notice of privacy practices describing how personal information is collected and shared?
- Gramm-Leach-Bliley Act (GLBA) (Correct answer)
- Fair Credit Reporting Act (FCRA)
- Health Insurance Portability and Accountability Act (HIPAA)
- Dodd-Frank Wall Street Reform Act
Correct answer: Gramm-Leach-Bliley Act (GLBA)
The Gramm-Leach-Bliley Act requires financial institutions, including insurers, to give consumers privacy notices and allow opt-out of certain information sharing.
Question 2: Under state insurance regulation, what is the primary purpose of a 'prior approval' rate filing requirement?
- To allow insurers to set rates freely before state review
- To require regulator approval of rates before they are used (Correct answer)
- To notify regulators of rate changes after implementation
- To exempt commercial lines from rate oversight
Correct answer: To require regulator approval of rates before they are used
Prior approval systems require the insurance department to formally approve rates before an insurer may charge them, ensuring rates are adequate, not excessive, and not unfairly discriminatory.
Question 3: Which entity is responsible for overseeing the financial solvency of insurance companies in the United States?
- The Federal Reserve Board
- Individual state insurance departments (Correct answer)
- The Securities and Exchange Commission (SEC)
- The Federal Insurance Office (FIO) alone
Correct answer: Individual state insurance departments
Insurance solvency regulation is primarily a state function, with each state's insurance department monitoring the financial condition of insurers licensed in that state.
Question 4: What does the term 'rebating' mean in insurance regulation, and why is it prohibited in most states?
- Charging higher premiums to high-risk applicants
- Offering a return of premium as an inducement to purchase insurance (Correct answer)
- Denying claims without proper investigation
- Misrepresenting policy terms to policyholders
Correct answer: Offering a return of premium as an inducement to purchase insurance
Rebating—returning part of the premium or providing other inducements not specified in the policy—is prohibited because it creates unfair competition and discriminates among policyholders.
Question 5: An insurer that knowingly issues a policy to cover an already-occurred loss is engaging in which prohibited practice?
- Twisting
- Backdating fraud (Correct answer)
- Concealment
- Anti-selection
Correct answer: Backdating fraud
Backdating fraud involves issuing a policy with an effective date prior to the loss, making the loss appear to be a covered future event when it was already known.
Question 6: Under the McCarran-Ferguson Act of 1945, federal antitrust laws apply to the insurance industry when:
- State law regulates the specific conduct at issue
- An insurer operates in more than five states
- Federal regulators determine state law is insufficient
- The conduct involves boycott, coercion, or intimidation (Correct answer)
Correct answer: The conduct involves boycott, coercion, or intimidation
The McCarran-Ferguson Act grants states the authority to regulate insurance but preserves federal antitrust jurisdiction over acts of boycott, coercion, or intimidation.
Question 7: Which insurance regulatory standard requires that policy language be written so that a person of average intelligence can understand it?
- Reasonable expectations doctrine
- Plain language or readability standard (Correct answer)
- Contra proferentem rule
- Principle of indemnity
Correct answer: Plain language or readability standard
Plain language or readability standards, often measured by Flesch Reading Ease scores, require that policy language be understandable to the average consumer.
CU Legal & Regulatory Compliance 2
Which federal law requires insurers to provide consumers with a notice of privacy practices describing how personal information is collected and shared?