Insurance Regulatory Frameworks & Compliance 5 — Questions and Answers
Question 1: Which NAIC model act addresses the minimum standards for market conduct in the prompt investigation and settlement of claims, and has been adopted in some form by most states?
- Unfair Trade Practices Act
- Unfair Claims Settlement Practices Act (Correct answer)
- Insurance Fraud Prevention Model Act
- Producer Licensing Model Act
Correct answer: Unfair Claims Settlement Practices Act
The NAIC Unfair Claims Settlement Practices Act sets minimum standards for timely claim acknowledgment, investigation, and payment, and has been widely adopted by states.
Question 2: Under the Affordable Care Act, which of the following is a required provision for health insurance plans sold in the individual and small group markets?
- Unlimited lifetime benefit maximums
- Coverage of essential health benefits (Correct answer)
- Employer contribution of at least 75%
- No deductibles for specialist visits
Correct answer: Coverage of essential health benefits
The ACA mandates that individual and small group market plans cover ten categories of essential health benefits, including preventive care, emergency services, and prescription drugs.
Question 3: The Nonadmitted and Reinsurance Reform Act (NRRA) of 2010 simplified surplus lines regulation by requiring that taxes on surplus lines policies be paid only to:
- The insurer's domicile state
- Every state where risk is located
- The insured's home state (Correct answer)
- The federal government
Correct answer: The insured's home state
The NRRA established that surplus lines premium taxes are paid only to the insured's 'home state,' eliminating multi-state tax allocation disputes.
Question 4: What is the main consequence for an insurance producer found guilty of 'twisting' under state insurance regulations?
- Required to complete additional CE hours
- License suspension or revocation and possible fines (Correct answer)
- Mandatory arbitration with the client
- Automatic referral to the state attorney general only
Correct answer: License suspension or revocation and possible fines
Twisting (inducing a policyholder to replace coverage through misrepresentation) is an unfair trade practice that can result in license suspension or revocation and civil or criminal penalties.
Question 5: State 'file and use' rate regulation means that insurers must:
- Receive prior approval before charging new rates
- File new rates and may immediately begin using them (Correct answer)
- Use only rates approved by the NAIC
- File rates only if they exceed the state benchmark by 10%
Correct answer: File new rates and may immediately begin using them
Under 'file and use,' insurers submit rate filings to the regulator and can begin using the rates immediately without waiting for approval, subject to later review.
Question 6: Which federal law requires large employers (50+ full-time equivalent employees) to offer affordable health insurance coverage or face potential penalties?
- ERISA
- HIPAA
- ACA Employer Shared Responsibility Provision (Correct answer)
- COBRA
Correct answer: ACA Employer Shared Responsibility Provision
The ACA's Employer Shared Responsibility Provision (often called the 'employer mandate') requires applicable large employers to offer minimum essential coverage or risk IRS penalties.
Question 7: An insurer that fails to comply with a state's prompt payment laws may be required to pay:
- Only the original claim amount
- Interest on the overdue claim payment (Correct answer)
- A flat fine of $10,000 per violation
- Double damages automatically
Correct answer: Interest on the overdue claim payment
Most state prompt payment statutes require insurers to pay interest on claims that are not paid within the required timeframe, incentivizing timely settlement.
Insurance Regulatory Frameworks & Compliance 5
Which NAIC model act addresses the minimum standards for market conduct in the prompt investigation and settlement of claims, and has been adopted in some form by most states?