MC 160 FOUNDATIONS OF INSURANCE REGULATION | 2026UPDATE |
QUESTIONS AND ANSWERS | WITH COMPLETE SOLUTION
The areas of insurance that are regulated by the federal government or other
agencies. Answer - - Self-insured health plans (surety laws)
- Variable life or annuities (security/surety)
- Medicare
- Medicaid is a joint federal/state endeavor.
- Federal Deposit Insurance Corporation (Banks)
- Credit Default Swaps and other derivative products (not really insurance)
- Multi-Peril Crop Insurance (FCIC)
- The National Flood Insurance Program (FEMA).
- The Patient Protection Affordable Care Act (some parts are by the state)
The purpose of insurance. Answer - The purpose of this is to share the risk of
financial loss by transferring a possible loss (risk) to an insurance company.
They in turn spreads out the cost of possible losses to many individuals through
premium.
Insurance Answer - A legal binding promise of compensation for specific
potential future losses in exchange for a periodic payment.
The business of insurance Answer - This is interpreted by the courts by
analyzing three factors:
1. Transferring or spreading a policy-holder's risk.
,2. Integral part of the policy relationship between the insurer and the insured.
3. Limited to entities within the insurance industry.
the four elements of an insurance contract Answer - 1. Agreement - offer and
acceptance.
2. Capacity to contract - ability to make legally binding agreements.
3. Consideration - promisor must receive a legal benefit such as money.
4. Legal purpose
indemnity Answer - a payment for damage or loss
Principle of Insurable Interest Answer - The insured must be in a position to
lose financially if a covered loss occurs. ie. No insuring homeless people and
knocking them off.
pooling Answer - -Combining losses for a group and sharing them in some
manner among group members
This allows entities to reduce the pure risks faced through transferring and
diversifying risk across a wider base of exposures and/or over time.
The four major product lines of insurance Answer - -Property
-Casualty
-Life
-Health
Domestic Insurers Answer - This type of insurer is located within the home
state or has its primary office is within that state.
,-The location of offices or operations within the state may be required by some
states as a prerequisite to being a domestic insurer.
Foreign Insurers Answer - This type of insurer is incorporated or formed in a
different state, not a different country.
-may or may not be licensed (admitted) in states other than their home state.
Alien Insurers Answer - This type of insurer is incorporated or formed under
the laws of another country.
-are non-admitted insurers and can offer surplus lines under certain conditions.
Admitted Insurers Answer - An insurer that is licensed to do business in a state
is considered this in that state.
-can be either domestic or foreign.
-often referred to as authorized insurers because they are authorized to do
business in the state.
Self funded insurance Answer - This insurance:
-has no monthly premiums that can be used for risks associated with
individuals or businesses.
-Used by companies in combination with other insurance policies, such as a
stop-loss policy.
Non-admitted insurers. Answer - These insurers are not licensed in the state in
which they are transacting insurance business.
-often referred to as unauthorized insurers.
-may or may not be legally able to offer coverage.
, Risk retention groups (RRG) Answer - These were authorized by the Liability
Risk Retention Act of 1986
-A federally created way of purchasing liability insurance.
-They accept the insurance risk of a group of businesses.
-only for liability insurance.
-regulation is done by the state in which it resides and other states have limited
ability to regulate
Surplus lines Answer - -Nonadmitted insurers can conduct business in a given
state through the placement of insurance (or export) with this line
-only the home state retains the premium tax on multi-state risks.
-Business is often placed through a licensed broker who acts as a conduit for
making sure that products are being at least stamped or taxes are being filed in
the respective states.
Captives Insurers Answer - This is when businesses insure themselves through
a subsidiary insurance company.
Reinsurance Answer - This is Insurance for Insurance Companies.
-Part of the risk from insureds (retention) and using this to cover the portion
the insurer doesn't want to keep (ceding).
-The main types of this are:
- Treaty
- Facultative
- Pro Rata
High Risk Pools Answer - These accept high risk individuals, exposures or
properties that insurers reject during underwriting.
-Law of large numbers says it will all work out in the end.
QUESTIONS AND ANSWERS | WITH COMPLETE SOLUTION
The areas of insurance that are regulated by the federal government or other
agencies. Answer - - Self-insured health plans (surety laws)
- Variable life or annuities (security/surety)
- Medicare
- Medicaid is a joint federal/state endeavor.
- Federal Deposit Insurance Corporation (Banks)
- Credit Default Swaps and other derivative products (not really insurance)
- Multi-Peril Crop Insurance (FCIC)
- The National Flood Insurance Program (FEMA).
- The Patient Protection Affordable Care Act (some parts are by the state)
The purpose of insurance. Answer - The purpose of this is to share the risk of
financial loss by transferring a possible loss (risk) to an insurance company.
They in turn spreads out the cost of possible losses to many individuals through
premium.
Insurance Answer - A legal binding promise of compensation for specific
potential future losses in exchange for a periodic payment.
The business of insurance Answer - This is interpreted by the courts by
analyzing three factors:
1. Transferring or spreading a policy-holder's risk.
,2. Integral part of the policy relationship between the insurer and the insured.
3. Limited to entities within the insurance industry.
the four elements of an insurance contract Answer - 1. Agreement - offer and
acceptance.
2. Capacity to contract - ability to make legally binding agreements.
3. Consideration - promisor must receive a legal benefit such as money.
4. Legal purpose
indemnity Answer - a payment for damage or loss
Principle of Insurable Interest Answer - The insured must be in a position to
lose financially if a covered loss occurs. ie. No insuring homeless people and
knocking them off.
pooling Answer - -Combining losses for a group and sharing them in some
manner among group members
This allows entities to reduce the pure risks faced through transferring and
diversifying risk across a wider base of exposures and/or over time.
The four major product lines of insurance Answer - -Property
-Casualty
-Life
-Health
Domestic Insurers Answer - This type of insurer is located within the home
state or has its primary office is within that state.
,-The location of offices or operations within the state may be required by some
states as a prerequisite to being a domestic insurer.
Foreign Insurers Answer - This type of insurer is incorporated or formed in a
different state, not a different country.
-may or may not be licensed (admitted) in states other than their home state.
Alien Insurers Answer - This type of insurer is incorporated or formed under
the laws of another country.
-are non-admitted insurers and can offer surplus lines under certain conditions.
Admitted Insurers Answer - An insurer that is licensed to do business in a state
is considered this in that state.
-can be either domestic or foreign.
-often referred to as authorized insurers because they are authorized to do
business in the state.
Self funded insurance Answer - This insurance:
-has no monthly premiums that can be used for risks associated with
individuals or businesses.
-Used by companies in combination with other insurance policies, such as a
stop-loss policy.
Non-admitted insurers. Answer - These insurers are not licensed in the state in
which they are transacting insurance business.
-often referred to as unauthorized insurers.
-may or may not be legally able to offer coverage.
, Risk retention groups (RRG) Answer - These were authorized by the Liability
Risk Retention Act of 1986
-A federally created way of purchasing liability insurance.
-They accept the insurance risk of a group of businesses.
-only for liability insurance.
-regulation is done by the state in which it resides and other states have limited
ability to regulate
Surplus lines Answer - -Nonadmitted insurers can conduct business in a given
state through the placement of insurance (or export) with this line
-only the home state retains the premium tax on multi-state risks.
-Business is often placed through a licensed broker who acts as a conduit for
making sure that products are being at least stamped or taxes are being filed in
the respective states.
Captives Insurers Answer - This is when businesses insure themselves through
a subsidiary insurance company.
Reinsurance Answer - This is Insurance for Insurance Companies.
-Part of the risk from insureds (retention) and using this to cover the portion
the insurer doesn't want to keep (ceding).
-The main types of this are:
- Treaty
- Facultative
- Pro Rata
High Risk Pools Answer - These accept high risk individuals, exposures or
properties that insurers reject during underwriting.
-Law of large numbers says it will all work out in the end.
