MC 160 FOUNDATIONS OF INSURANCE REGULATION EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026

MC 160 FOUNDATIONS OF INSURANCE REGULATION EXAM QUESTIONS ANSWERED CORRECTLY LATEST UPDATE 2026 The areas of insurance that are regulated by the federal government or other agencies. - Answers - 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. - Answers 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 - Answers A legal binding promise of compensation for specific potential future losses in exchange for a periodic payment. The business of insurance - Answers 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 - Answers 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 - Answers a payment for damage or loss Principle of Insurable Interest - Answers 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 - Answers -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 - Answers -Property -Casualty -Life -Health Domestic Insurers - Answers 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 - Answers 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 - Answers 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 - Answers 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 - Answers 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. - Answers 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) - Answers 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 - Answers -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 - Answers This is when businesses insure themselves through a subsidiary insurance company. Reinsurance - Answers 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 - Answers 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. Functions of a DOI - Answers -Financial Surveillance -Market Conduct -Agent Licensing -Rates and Forms -Consumer Protection -Other Misc functions. Market conduct regulation - Answers This type of regulation reviews: -a carrier's policies and -procedures and -how claims are processed to ensure companies comply with laws and regulations pertaining to market activities. DOIs and other DOIs - Answers These have a formalized relationships with one another through membership in NAIC. -They also have informal working relationships with one another. ( cross border issues etc) DOI and stakeholders - Answers This relationship involves: -involvement in insurance legislative and rulemaking, -can be adversary or supportive -Some have standing advisory committees other are more of an ad hoc fashion. -Can be with other agencies, ie Dept of Health or Dept of Labor Why insurance is primarily regulated at the state level - Answers The states are able to more efficiently protect consumers. Also a whole bunch of court cases. The difference between insurance laws, regulations, bulletins, and NAIC guidance - Answers The difference in these are: Law: Enacted by the legislator (statutes) Act: A more specific law Regulation: Same as above, but don't need the legislator. Bulletins/Guidance: NAIC suggestions "Best Practices" The measures states have taken to promote regulatory uniformity, and explain when uniformity is and is not appropriate - Answers These measures include: -enacting NAIC model laws. -The Interstate Insurance Compact -Interstate Insurance Product Regulation Commission Property and Casualty lines have more state specific regulation due to local geographic characteristics, such as earthquakes, tornados, or volcano activity and therefore are less likely to achieve uniformity through the Interstate Compact. The consumer protections afforded under the Unfair Trade Practices and Unfair Claims Practices Acts. - Answers Any of the following practices are in violation of this act: -Misrepresentations and False Advertising of Insurance Policies -False Information and Advertising Generally -Defamation -Boycott, Coercion and Intimidation -False Statements and Entries -Stock Operations and Advisory Board Contracts -Unfair Discrimination -Prohibited Group Enrollments -Failure to Maintain Marketing and Performance Records -Failure to Maintain Complaint Handling Procedures -Misrepresentations in Insurance Applications -Unfair Financial Planning Practices -Failure to file or certify information regarding the endorsement or sale of long-term care insurance -Failure to Provide Claims History DOI ethical standards - Answers -Role of Protector -Conflict of Interest -Confidentiality The types of non-insurance entities that are typically licensed or registered by insurance departments. - Answers These fall in to two categories Property and Casualty -Public Adjuster -Motor Vehicle Service Contract -Rating Organization -Advisory Organization -Bail Bonds Agent -Captive Insurer -Home Warranty Contract Life and Health -Pharmacy Benefit Manager -Private Review Agent(PRA) -Medical Discount Plan -Viatical Settlement Provider -Preneed Funeral Contract Provider Match information types to the NAIC publications, repositories, and/or databases that contain them. - Answers -PDB, Producer Info -NIPR Gateway this links the state's information -SERF handles rates and forms filling -SBS handles app/renewals/inquires/complains etc -OPTins is for surplus lines and state specific filings UCAA- Application form uniformity NAIC Accreditation Program- Law uniformity I-SITE- where it is all at CDC- closed complaints white papers - Answers These contain best practice guidelines that do not requiring uniform adoption or the level of dedicated resources to implement as a Model Law. non-NAIC sources of information commonly accessed by regulators. - Answers - AM Best Company - Trade Associations - Consumer Advocacy Groups - State and Federal Legislators - Other State Agencies McCarran-Ferguson Act - Answers This Act of 1945 exempts the "business of insurance" from most federal regulation. Export - Answers The placement of insurance with a surplus lines insurer valued policy - Answers Pays the face amount of insurance regardless of the actual cash value of the loss -sometimes used to insure items for which it would be difficult to determine the actual cash value or fair market value, such as rare antiques replacement cost contracts - Answers the cost of replacing the insured property is paid with no deduction for depreciation Principle of Indemnity - Answers Insureds should not profit from a covered loss but should be restored to no better Law of Large Numbers - Answers A principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss. Risk - Answers This is a condition in which more than one outcome is possible. Peril - Answers an event that causes a loss, such as hostile fires, earthquakes, windstorms and premature death. Pure risk - Answers This involves no chance of economic gain and uncertainty about whether a financial loss will occur and possibly how much that financial loss will be Speculative risk - Answers This involves the chance of gain or loss and, in theory, is not insurable. (Gambling) The types of captive arrangements - Answers - Pure Captive - Group Captive - Segregated Cell Captive - Association Captive Group Captive - Answers When multiple businesses jointly form a subsidiary captive insurer that insures some or all of the business risks of the member businesses (or group). Segregated cell captive - Answers When each group members risk is partially or fully segregated from the risks of the other group members. Association Captive - Answers This is when an association forms a captive to insure the risks of the association members. -Typically only provide coverage to the members of the association. -primarily write P&C coverages though there is now movement for health and life Casualty Insurance - Answers Also known as liability insurance. -Provides coverage to a person or a business for negligent acts that cause bodily injury or property damage to others. -Some common types are: errors and omissions, fidelity, and various types of malpractice insurance. -Homeowners and auto insurance are examples Health Insurance - Answers Provides coverage to a person for medical expenses. -expenses can include emergencies, hospital stays, physician visits, medications, and other related medical expenses. -The most common health insurance plans are comprehensive (or group) coverage plans such as Health Maintenance Organization (HMO), Preferred Provider Organization (PPO), Indemnity, and other company sponsored major medical plans. -Supplemental or Limited Benefit plans include coverage such as dental, vision, or specified disease/illness. Life Insurance - Answers Provides a sum of money to a beneficiary when the insured dies. -The owner of the policy must suffer a genuine loss if the insured dies. -Whole _____ policies pay the death benefit whenever the insured dies no matter what age. - Term _____ policy pays a death benefit only if the insured dies within the "term" or time window of the policy. -The premiums for a term policy are much lower than whole. -Universal_____ and Variable_____ are policies that provide management and investment opportunities for whole _____ policies. Annuities - Answers -systematically liquidate a certain sum. -The insurer agrees to pay the annuitant a certain sum of money for a specified period of time. -The objective is to protect the annuitant against outliving other sources of income. -combined with Life contingencies only pay as long as the annuitant is alive. Treaty Reinsurance - Answers A form of reinsurance where the insurer and reinsurers agree in advance that certain lines or classes of business will be seeded or transferred to the reinsurer. Facultative Reinsurance - Answers A form of reinsurance that is is individually underwritten. -normally written on a case by case basis and involve an unusual risk or large risk. -The insurer may only seek the this in the event that unusual risk can't be transferred to other risk. -may be a pro-rata type reinsurance model. Pro rata reinsurance - Answers A type of reinsurance in which the primary insurer and reinsurer proportionately share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses) DOI: Financial Surveillance - Answers AKA: financial regulation, company supervision, financial examination. -reviews a company's financial solvency. -ensure the carrier's capital requirements are met. -may also be responsible for the licensing of state regulated entities. -Collect and analyze (desk audits) of financial data - Classify and identify troubled companies -Review company transactions - Financial Examinations - Company Licensing DOI: Market Conduct - Answers - Review and analyze nonfinancial data - Market Analysis - Market Conduct - Examinations DOI: Agent Licensing - Answers - Licensing and Admissions of Agents and Brokers DOI: Rates and Forms - Answers - Life/Health Policy Form and Premium Rate review - Property/ Casualty Policy Form and Premium Rate review - SERFF DOI: Consumer Protection - Answers - Complaints - Medicare/ Medicaid DOI: Other Functions - Answers - Legal - Public Affairs - Legislative Policy - HR - IT - Accounting - SIU Financial regulation - Answers This focuses on quantitative measurements by analyzing an insurance carrier's financial solvency and ability to pay claims owed to consumers.