Insurance Regulatory Frameworks & Compliance 4 — Questions and Answers
Question 1: Which type of market conduct examination focuses specifically on how an insurer handles policyholder claims, complaints, and cancellations?
- Financial examination
- Targeted market conduct exam (Correct answer)
- Actuarial review
- Rate and form filing review
Correct answer: Targeted market conduct exam
A targeted market conduct examination reviews specific business practices such as claims handling, underwriting, and policyholder treatment rather than overall financial condition.
Question 2: Under COBRA, for how long may a qualified beneficiary typically continue group health coverage after losing eligibility due to termination of employment?
- 12 months
- 18 months (Correct answer)
- 24 months
- 36 months
Correct answer: 18 months
COBRA generally provides 18 months of continuation coverage for qualified beneficiaries who lose coverage due to reduced hours or termination of employment (not for gross misconduct).
Question 3: A free-trade zone regulatory approach in which insurers from states with 'substantially similar' laws may do business in other states without additional licensing is provided by the:
- Nonadmitted and Reinsurance Reform Act
- Interstate Insurance Product Regulation Compact (Correct answer)
- Federal Insurance Office Act
- NAIC Accreditation Program
Correct answer: Interstate Insurance Product Regulation Compact
The Interstate Insurance Product Regulation Compact (IIPRC) allows insurers to file certain life, annuity, disability, and long-term care products for approval by a single interstate authority.
Question 4: An insurer's 'risk-based capital' (RBC) ratio compares its actual capital to its required capital. A ratio below 200% typically triggers which level of regulatory action?
- No action required
- Company action level (Correct answer)
- Regulatory action level
- Mandatory control level
Correct answer: Company action level
An RBC ratio below 200% (the Company Action Level) requires the insurer to submit a plan to regulators explaining how it will improve its capital position.
Question 5: Which regulation requires insurers to provide written notice to policyholders before canceling a policy mid-term, with most states requiring at least:
- 5 days
- 10 days
- 30 days (Correct answer)
- 60 days
Correct answer: 30 days
Most states require at least 30 days' advance written notice before mid-term cancellation, though some states require fewer days for nonpayment of premium.
Question 6: The Gramm-Leach-Bliley Act (GLBA) requires insurance companies to:
- File rates with a federal agency
- Notify customers about information-sharing practices and protect financial data privacy (Correct answer)
- Obtain federal licensing in addition to state licensing
- Separate insurance and banking activities
Correct answer: Notify customers about information-sharing practices and protect financial data privacy
GLBA requires financial institutions, including insurers, to provide privacy notices and safeguard customers' nonpublic personal financial information.
Question 7: When an insurer's domicile state is different from the state where it writes most of its business, it is classified as a(n) _____ insurer in those other states:
- Domestic
- Foreign (Correct answer)
- Alien
- Surplus lines
Correct answer: Foreign
An insurer is 'domestic' in its state of incorporation, 'foreign' in other U.S. states where it is licensed, and 'alien' if incorporated outside the United States.
Insurance Regulatory Frameworks & Compliance 4
Which type of market conduct examination focuses specifically on how an insurer handles policyholder claims, complaints, and cancellations?