P&C Insurance Regulation and Licensing 3

Question 1

An insurance company that is 'admitted' in a state means it has:

Accepted Answer

Received a Certificate of Authority from the state insurance department to transact insurance business in that state

Answer

Applied for but not yet received a license

Answer

Agreed to cover all risks presented in the state

Answer

Been approved by the NAIC for nationwide operations

Question 2

'Rebating' in insurance is defined as:

Accepted Answer

Offering a prospect something of value not specified in the policy (such as a portion of the commission) as an inducement to purchase

Answer

Reviewing policy terms with a client after purchase

Answer

Returning unearned premium upon policy cancellation

Answer

Increasing the policy limit at renewal without increasing the premium

Question 3

A 'managing general agent' (MGA) in insurance has authority to:

Accepted Answer

Bind coverage, issue policies, and handle claims on behalf of the insurer for a defined book of business, with broader authority than a standard agent

Answer

Issue policies only for personal lines

Answer

Regulate other agents on behalf of the state

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Only provide customer service, not bind coverage

Question 4

What is required for a policy to be validly cancelled mid-term by the insurer?

Accepted Answer

The insurer must provide written advance notice (typically 10–30 days) to the insured and, in many states, a valid legal reason

Answer

No notice is required; the insurer may cancel at any time

Answer

The insurer must obtain court approval before cancellation

Answer

The insurer must refund two years of future premiums

Question 5

Under the 'diligent search' requirement in surplus lines placement, a broker must:

Accepted Answer

Document that the coverage sought was unavailable or unaffordable in the admitted market before placing with a non-admitted insurer

Answer

Place the risk with at least three surplus lines carriers before admitting failure

Answer

Obtain approval from the insurer's home state regulator

Answer

Charge a rate identical to the admitted market

Question 6

What is the primary consumer protection purpose of state insurance rate regulation?

Accepted Answer

To ensure rates are not excessive, inadequate, or unfairly discriminatory

Answer

To guarantee insurer profitability

Answer

To set identical rates for all insurers competing in the state

Answer

To eliminate price competition among insurers