MC 160 FOUNDATIONS OF INSURANCE REGULATION QUESTIONS AND
ANSWERS
The areas of insurance that are regulated by the federal government or other agencies. - CORRECT
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. - CORRECT 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 - CORRECT ANSWER✅✅A legal binding promise of compensation for specific potential future
losses in exchange for a periodic payment.
The business of insurance - CORRECT 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 - CORRECT 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 - CORRECT ANSWER✅✅a payment for damage or loss
Principle of Insurable Interest - CORRECT 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 - CORRECT 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 - CORRECT ANSWER✅✅-Property
-Casualty
-Life
-Health
Domestic Insurers - CORRECT 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 - CORRECT 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 - CORRECT 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 - CORRECT 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 - CORRECT 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. - CORRECT 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) - CORRECT 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 - CORRECT 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 - CORRECT ANSWER✅✅This is when businesses insure themselves through a
subsidiary insurance company.
, Reinsurance - CORRECT 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 - CORRECT 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.
Functions of a DOI - CORRECT ANSWER✅✅-Financial Surveillance
-Market Conduct
-Agent Licensing
-Rates and Forms
-Consumer Protection
-Other Misc functions.
Market conduct regulation - CORRECT ANSWER✅✅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 - CORRECT ANSWER✅✅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)
ANSWERS
The areas of insurance that are regulated by the federal government or other agencies. - CORRECT
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. - CORRECT 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 - CORRECT ANSWER✅✅A legal binding promise of compensation for specific potential future
losses in exchange for a periodic payment.
The business of insurance - CORRECT 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 - CORRECT 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 - CORRECT ANSWER✅✅a payment for damage or loss
Principle of Insurable Interest - CORRECT 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 - CORRECT 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 - CORRECT ANSWER✅✅-Property
-Casualty
-Life
-Health
Domestic Insurers - CORRECT 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 - CORRECT 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 - CORRECT 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 - CORRECT 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 - CORRECT 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. - CORRECT 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) - CORRECT 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 - CORRECT 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 - CORRECT ANSWER✅✅This is when businesses insure themselves through a
subsidiary insurance company.
, Reinsurance - CORRECT 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 - CORRECT 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.
Functions of a DOI - CORRECT ANSWER✅✅-Financial Surveillance
-Market Conduct
-Agent Licensing
-Rates and Forms
-Consumer Protection
-Other Misc functions.
Market conduct regulation - CORRECT ANSWER✅✅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 - CORRECT ANSWER✅✅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)
