COMMERCIAL LINES LATEST
101 CE EXAM
Reasons for Regulation in the Insurance Industry - ANSWERS-Preserve
insurer solvency, complex product and unequal knowledge, ensure fair
rates, promote social objectives
Why is maintaining insurance solvency the most important objective of
insurance regulation? - ANSWERS-The insured is totally reliant on the
financial backing of the insurers promise to pay for a covered loss
Paul v. Virginia 1868 - ANSWERS-Concluded that insurance was not
interstate commerce and thus did not fall under federal jurisdiction
South-Eastern Underwriters Association case 1944 - ANSWERS-Found
that insurance was interstate commerce and should accordingly be
regulated by the federal government
McCarran Ferguson Act 1945 - ANSWERS-Returned insurance
regulation to the states with narrow or limited applicability of specified
federal laws to insurance
Advantages of State Regulation - ANSWERS-Well established, more
flexible and adaptable to change, allows for experimentation, allows a
decentralization of political influence
END OF
PAGE
1
,COMMERCIAL LINES LATEST
101 CE EXAM
Advantages of Federal Regulation - ANSWERS-Some states have
inadequate personnel to properly regulate, some states lack funding,
greater operating efficiencies, establish a more consistent and uniform
way of addressing insurer insolvencies
Entities Actively Involved in Insurance Regulation - ANSWERS-The
courts, legislative bodies, state insurance departments
Solvency Regulation - ANSWERS-An insurer that cannot keep its
promise to pay for a covered loss because of its bankrupt condition can
be devastating to and insured business; thus, areas in which insurer
solvency is regulated include insurer licensing and capital requirements
and financial regulation
Insurer Licensing and Capital Requirements - ANSWERS-An insurer
must meet certain capital or surplus standards to be granted a license to
write insurance in a particular jurisdiction
Capital or Surplus - ANSWERS-The assets of an entity remaining after
deduction of liabilities (the net worth of a business or person)
END OF
PAGE
2
,COMMERCIAL LINES LATEST
101 CE EXAM
Financial Regulation - ANSWERS-Insurers are continuously subject to
addition financial requirements such as admitted assets, unearned
premium reserves, loss reserves, and risk-based capital
Admitted Assets - ANSWERS-Assets whose value is included in the
annual statement of an insurer to the state insurance department; can
readily be used to pay claims, including cash, stocks, bonds, real estate,
and money market funds
Nonadmitted Assets - ANSWERS-All other assets such as insurer's
office supplies, furniture, and noncollectable agency debt
Unearned Premium Reserves - ANSWERS-An insurer's liability for its
unearned premium on any given valuation date
Unearned Premium - ANSWERS-That portion of the policy premium
the insurer has not yet "earned" because the policy still has some time to
run before expiration
Loss Reserves - ANSWERS-An estimate of the value of a claim or
group of claims not yet paid
END OF
PAGE
3
, COMMERCIAL LINES LATEST
101 CE EXAM
Risk-Based Capital - ANSWERS-Method developed to determine the
minimum amount of capital required of an insurer to support its
operations and write coverage
Objectives in the Rate Regulatory Process - ANSWERS-The rate should
be reasonable, rates should be adequate to properly cover the insurer's
expected losses and expenses while also allowing a fair rate of return,
and rates should not be unfairly discriminatory among various insured
classes
Insurance Services Office (ISO) - ANSWERS-Prepares standard policy
forms portfolios for all major lines of commercial insurance except
workers compensation
Major Competitor of ISO in Most Commercial Lines - ANSWERS-
American Association of Insurance Services (AAIS)
National Council on Compensation Insurance (NCCI) - ANSWERS-
Promulgates the standards workers compensation policy
END OF
PAGE
4
101 CE EXAM
Reasons for Regulation in the Insurance Industry - ANSWERS-Preserve
insurer solvency, complex product and unequal knowledge, ensure fair
rates, promote social objectives
Why is maintaining insurance solvency the most important objective of
insurance regulation? - ANSWERS-The insured is totally reliant on the
financial backing of the insurers promise to pay for a covered loss
Paul v. Virginia 1868 - ANSWERS-Concluded that insurance was not
interstate commerce and thus did not fall under federal jurisdiction
South-Eastern Underwriters Association case 1944 - ANSWERS-Found
that insurance was interstate commerce and should accordingly be
regulated by the federal government
McCarran Ferguson Act 1945 - ANSWERS-Returned insurance
regulation to the states with narrow or limited applicability of specified
federal laws to insurance
Advantages of State Regulation - ANSWERS-Well established, more
flexible and adaptable to change, allows for experimentation, allows a
decentralization of political influence
END OF
PAGE
1
,COMMERCIAL LINES LATEST
101 CE EXAM
Advantages of Federal Regulation - ANSWERS-Some states have
inadequate personnel to properly regulate, some states lack funding,
greater operating efficiencies, establish a more consistent and uniform
way of addressing insurer insolvencies
Entities Actively Involved in Insurance Regulation - ANSWERS-The
courts, legislative bodies, state insurance departments
Solvency Regulation - ANSWERS-An insurer that cannot keep its
promise to pay for a covered loss because of its bankrupt condition can
be devastating to and insured business; thus, areas in which insurer
solvency is regulated include insurer licensing and capital requirements
and financial regulation
Insurer Licensing and Capital Requirements - ANSWERS-An insurer
must meet certain capital or surplus standards to be granted a license to
write insurance in a particular jurisdiction
Capital or Surplus - ANSWERS-The assets of an entity remaining after
deduction of liabilities (the net worth of a business or person)
END OF
PAGE
2
,COMMERCIAL LINES LATEST
101 CE EXAM
Financial Regulation - ANSWERS-Insurers are continuously subject to
addition financial requirements such as admitted assets, unearned
premium reserves, loss reserves, and risk-based capital
Admitted Assets - ANSWERS-Assets whose value is included in the
annual statement of an insurer to the state insurance department; can
readily be used to pay claims, including cash, stocks, bonds, real estate,
and money market funds
Nonadmitted Assets - ANSWERS-All other assets such as insurer's
office supplies, furniture, and noncollectable agency debt
Unearned Premium Reserves - ANSWERS-An insurer's liability for its
unearned premium on any given valuation date
Unearned Premium - ANSWERS-That portion of the policy premium
the insurer has not yet "earned" because the policy still has some time to
run before expiration
Loss Reserves - ANSWERS-An estimate of the value of a claim or
group of claims not yet paid
END OF
PAGE
3
, COMMERCIAL LINES LATEST
101 CE EXAM
Risk-Based Capital - ANSWERS-Method developed to determine the
minimum amount of capital required of an insurer to support its
operations and write coverage
Objectives in the Rate Regulatory Process - ANSWERS-The rate should
be reasonable, rates should be adequate to properly cover the insurer's
expected losses and expenses while also allowing a fair rate of return,
and rates should not be unfairly discriminatory among various insured
classes
Insurance Services Office (ISO) - ANSWERS-Prepares standard policy
forms portfolios for all major lines of commercial insurance except
workers compensation
Major Competitor of ISO in Most Commercial Lines - ANSWERS-
American Association of Insurance Services (AAIS)
National Council on Compensation Insurance (NCCI) - ANSWERS-
Promulgates the standards workers compensation policy
END OF
PAGE
4
