Insurance Regulatory Frameworks & Compliance 3 — Questions and Answers
Question 1: Which state office is primarily responsible for licensing insurance agents, investigating consumer complaints, and examining insurer financial condition?
- State attorney general
- Department of Insurance (Correct answer)
- Federal Insurance Office
- State treasurer's office
Correct answer: Department of Insurance
Each state's Department of Insurance (or equivalent) is the primary regulatory body overseeing all aspects of the insurance industry within that state.
Question 2: The term 'prior approval' in insurance rate regulation means that:
- Insurers must file rates but may use them immediately
- Rates must be approved by the regulator before use (Correct answer)
- Insurers file rates for informational purposes only
- Rate changes take effect 60 days after filing
Correct answer: Rates must be approved by the regulator before use
Under prior approval systems, a state regulator must formally approve rates before an insurer can charge them to policyholders.
Question 3: What is the primary purpose of the NAIC's Insurance Regulatory Information System (IRIS)?
- To license agents across multiple states simultaneously
- To flag insurers with potential financial solvency problems (Correct answer)
- To standardize policy language across all states
- To process consumer complaints about insurers
Correct answer: To flag insurers with potential financial solvency problems
IRIS uses financial ratios to help regulators identify insurers that may be experiencing financial difficulties and warrant closer examination.
Question 4: Under the Dodd-Frank Wall Street Reform Act, which office was created within the U.S. Treasury to monitor systemic risk in the insurance industry?
- Office of Insurance Advocacy
- Federal Insurance Office (FIO) (Correct answer)
- National Insurance Commission
- Consumer Financial Protection Bureau
Correct answer: Federal Insurance Office (FIO)
The Federal Insurance Office (FIO) was established by Dodd-Frank to monitor the insurance industry for systemic risk and coordinate federal insurance policy.
Question 5: An insurer that operates without a certificate of authority in a state is considered:
- A surplus lines carrier
- An unauthorized or non-admitted insurer (Correct answer)
- A domestic insurer
- A reinsurer
Correct answer: An unauthorized or non-admitted insurer
An insurer doing business without a certificate of authority (license) in a state is unauthorized or non-admitted and may be subject to regulatory penalties.
Question 6: Which provision in most state insurance codes prohibits insurers from canceling or nonrenewing homeowner policies solely because the insured filed one claim?
- Loss ratio cap
- Anti-discrimination statute
- Arbitrary cancellation prohibition (Correct answer)
- Claims frequency restriction
Correct answer: Arbitrary cancellation prohibition
Many states have laws preventing 'arbitrary' cancellation or nonrenewal, requiring insurers to show objective underwriting justification beyond a single claim.
Question 7: The McCarran-Ferguson Act of 1945 primarily established that:
- Federal antitrust law applies to all insurance transactions
- States have primary authority to regulate the insurance industry (Correct answer)
- The SEC oversees insurance company investments
- Interstate insurance compacts are unconstitutional
Correct answer: States have primary authority to regulate the insurance industry
McCarran-Ferguson confirmed that regulation of the insurance business is the responsibility of the states and that federal antitrust law applies only where state regulation is absent.
Insurance Regulatory Frameworks & Compliance 3
Which state office is primarily responsible for licensing insurance agents, investigating consumer complaints, and examining insurer financial condition?