Deck 24: Government Regulation of Risk Management and Insurance

Question 1

Perhaps the chief reason for regulation of insurance is to keep rates down.

Answer 1

False

Question 2

Some outside control over pricing in insurance is desirable for both the insured and the insurer.

Answer 2

True

Question 3

Paul v. Virginia established that insurance was to be considered a contract in interstate commerce.

Answer 3

False

Question 4

The Appleton Rule extends the influence of New York as a regulatory force.

Question 5

It is usual for states to require the same amount of capitalization for an insurer regardless of the type of insurance it handles.

Question 6

All states impose investment limitations on the type of securities an insurer may purchase.

Question 7

Rebating in insurance occurs when an insurer returns a dividend to its policyholders.

Question 8

History demonstrates that state regulation has almost eliminated insurer insolvency.

Question 9

State laws often require that insurance rates not be excessive, but say nothing about being high enough to fairly cover all costs.

Question 10

Under the McCarran-Ferguson Act, Congress stated that it desired state regulation of insurance to continue.

Question 11

Under the McCarran-Ferguson Act, federal regulation of insurance was eliminated.

Question 12

Most states neither require nor prohibit cooperative rate making by private insurers.

Question 13

The state insurance department handles complaints of the insuring public that arise over the interpretation of policy provisions.

Question 14

Retaliatory laws in insurance relate to enforcement of contractual provisions of insurance policies.

Question 15

Anticoercion laws prohibit a lender from requiring that a borrower buy insurance from the lender as a condition of obtaining a loan.

Question 16

An important reason for regulation of insurance is because insurance is paid for in advance but the benefit is collected in the future.

Question 17

Abuses in insurance have been few and far between.

Question 18

The famous Armstrong investigation concerned mainly practices in property-liability insurance.

Question 19

The SEUA case reversed Paul v Virginia, holding that insurance was interstate commerce.

Question 20

The Sherman Act, the Clayton Act, and the Robinson-Patman Act, all federal laws, still apply to insurance under stated conditions.

Question 21

A major advantage claimed for federal regulation of insurance is that it would result in lower rates.

Question 22

One advantage claimed for state regulation of insurance is that it is more flexible than federal regulation.

Question 23

State guaranty funds to cover insurer insolvencies are supported by state taxation.

Question 24

State rate regulation requires that insurance rates shall not discriminate among insureds.

Question 25

An agent's license can be revoked for making misrepresentations about insurance.

Question 26

Under a 1995 Supreme Court ruling, banks are restricted from selling annuities.

Question 27

Under the Gramm-Leach-Bliley Act of 1999 Congress repealed the prohibition on insurers owning and operating banks, as well as the prohibition on banks owning and operating insurers.

Question 28

Match the descriptions with their terms:

-The case that reversed Paul v Virginia, making insurance subject to federal regulation, was the _________________.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 29

Match the descriptions with their terms:

-State laws requiring that insurance rates be submitted before their use are called _________________ laws.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 30

Match the descriptions with their terms:

-State laws allowing free competition to operate among insurers in pricing their products are called _________________.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 31

Match the descriptions with their terms:

-State laws allowing insurers to submit proposed rates in advance to regulators but to charge these rates without advance approval are called _________________ laws.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 32

Match the descriptions with their terms:

-If an agent makes misleading statements about the cost of insurance to a client, the agent can be penalized for _________________.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 33

Match the descriptions with their terms:

-Under most state laws an agent is prohibited from offering to return part of the commission to a client, which is known as _____________.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 34

Match the descriptions with their terms:

-If an agent persuades a client to drop an existing policy through misrepresentation of facts, the agent is guilty of _________________.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 35

Match the descriptions with their terms:

-_________________ require a state to respond to adverse legislation in another state by passing similar legislation at home.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 36

Match the descriptions with their terms:

-_________________ provide that if one state does something for another, that state shall do the same for the first.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 37

Match the descriptions with their terms:

-Under _________________, it is not necessary to travel to a distant state to bring a legal action against an insurer operating in one's home state.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 38

Match the descriptions with their terms:

-If one needs to sue an insurer, one can do so by serving a summons to the state insurance commissioner under a/an _________________.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 39

Match the descriptions with their terms:

-Laws prohibiting lending agencies from requiring a borrower to purchase insurance from the agency as a condition of getting a loan are termed _________________.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 40

Match the descriptions with their terms:

-If you discover that your insurer is bankrupt and is not paying your legitimate claim, you might be able to recover from state _________________.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 41

Match the descriptions with their terms:

-The 1984 federal law governing how life insurers pay federal income tax is called _________________.

A) anticoercion statutes
B) DEFRA
C) file and use
D) insolvency funds
E) misrepresentation
F) open competition laws
G) prior approval
H) rebating
I) Reciprocal laws
J) Retaliatory laws
K) service-of-process statute
L) SEUA case
M) twisting
N) unauthorized insurers service-of-process acts

Question 42

All but one of the following are subjects of state regulation of insurance:

A) rate making and expenses,
B) minimum standards of financial solvency,
C) selection of management personnel,
D) business acquisition practices,
E) contractual provisions.

Question 43

Insurance is regulated by government for all but one of the following chief reasons:

A) it is such an important source of tax revenues,
B) its benefits depend on the future solvency of the insurer,
C) the cost of insurance is unknown at the time its price is determined,
D) the public does not understand the complexities of the insurance contract,
E) its past record of fraudulent practices.

Question 44

A life insurance agent persuades Jones to drop an old life insurance policy and replace it with one sold by the agent's company by misrepresenting facts about Jones's present policy. This is an example of

A) rebating,
B) coercion,
C) twisting,
D) concealment,
E) patronage.

Question 45

All but one of the following affect the insurance business directly:

A) the Securities Act of 1933,
B) the Securities Exchange Act of 1934,
C) the Investment Company Act of 1940,
D) the McCarran-Ferguson Act of 1945,
E) Section 30 of the Internal Revenue Code.

Question 46

Smith applies for an auto loan from his bank and is told that to get the loan he must also purchase auto insurance from an agent approved by the bank. This practice is prohibited in most states by

A) reciprocal laws,
B) anticancellation laws,
C) anticoercion statutes,
D) tort reform,
E) service-of-process statutes.

Question 47

Laws requiring an insurer to submit its proposed rates to an insurance commissioner before using them are called

A) prior approval,
B) open competition,
C) state-mandated rating,
D) confiscatory,
E) anti-monopoly.

Question 48

Truth in advertising in insurance is subject to regulation by

A) state insurance departments,
B) the Federal Trade Commission,
C) the National Association of Insurance Commissioners,
D) both a and c,
E) both a and b.

Question 49

Which of the following was a Supreme Court decision that held insurance was not commerce and hence not subject to federal regulation?

A) the SEUA case,
B) Paul v. Virginia,
C) the Appleton Rule,
D) American Indemnity v. Hobbs,
E) United States v. Investors Diversified Services.

Question 50

Arguments for state regulation of insurance, as opposed to federal regulation, include all but one of the following:

A) greater flexibility,
B) satisfactory efficiency,
C) greater uniformity,
D) avoidance of two systems of regulation operating simultaneously,
E) avoidance of too much federal control over insurance industry affairs.

Question 51

The purpose of state insolvency, or guaranty, funds includes all but one of the following:

A) to prevent insolvencies among insurers,
B) to cover claims of insureds against insolvent insurers,
C) to avoid excessive delays in payment from insurers,
D) to assist in detecting insolvent insurers,
E) to rate the securities held by insurers so that state insurance commissioners can better monitor the finances of insurers.

Question 52

Which of the following best describes the duties of state insurance regulators with regard to insurance rates?

A) to prevent the use of rates that discriminate among different insured groups,
B) to prevent the use of rates that discriminate unfairly among different insured groups,
C) to mandate rates to be used by insurers,
D) to see that insurers charge enough to make a satisfactory profit,
E) to convince the public that insurance rates are not excessive.

Question 53

Rate regulation in life insurance is accomplished mainly through

A) allowing open competition to operate,
B) letting of rates by the insurance commissioner,
C) reserve requirements,
D) investment regulation,
E) life insurance rates are unregulated.