P&C Insurance Regulation and Ethics 3

Question 1

What is the primary role of a state insurance guaranty fund?

Accepted Answer

To pay covered claims of insolvent insurers up to statutory limits, protecting policyholders

Answer

State guaranty funds protect policyholders and claimants when a licensed property/casualty insurer becomes insolvent by paying covered claims up to statutory limits (usually $300,000–$500,000 per claim).

Question 2

Under insurance ethics, 'twisting' refers to:

Accepted Answer

Inducing a policyholder to drop an existing policy through misrepresentation and replace it with a policy from a different company

Answer

Twisting is the use of misrepresentations or incomplete comparisons to convince an insured to drop one company's policy and replace it with another company's policy, to the detriment of the insured.

Question 3

The NAIC (National Association of Insurance Commissioners) primarily:

Accepted Answer

Serves as a coordination and standard-setting body for state insurance regulators, developing model laws and data-sharing systems

Answer

The NAIC is a voluntary organization of state insurance regulators that develops model laws, regulatory standards, and data-sharing systems to promote uniformity in state regulation; it has no direct regulatory authority.

Question 4

An agent who tells a prospective client that a competitor's insurer is about to become insolvent (without factual basis) is engaging in:

Accepted Answer

Defamation and an unfair trade practice

Answer

Making false statements about a competitor insurer's financial condition to induce prospects to switch carriers is defamation and a prohibited unfair trade practice under state insurance laws.

Question 5

'Redlining' in insurance is:

Accepted Answer

The illegal practice of denying or restricting insurance in certain geographic areas based on race or national origin

Answer

Redlining is the discriminatory practice of refusing to write or limiting insurance in certain neighborhoods based on the racial or ethnic composition of the area rather than legitimate underwriting criteria.

Property & Casualty Insurance License Test Practice Test

Property & Casualty Insurance License Test Practice Test

P&C Insurance Regulation and Ethics 3