2024 CPCU 520 CHAPTER 2
COMPLETE QUESTIONS AND
ACTUAL ANSWERS VERIFIED BY
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What is necessary to correct market imperfections? - CORRECT
ANSWER>>>>Regulation
The insurance industry is regulated for three reasons: - CORRECT ANSWER>>>>To
protect consumers
To maintain insurer solvency
To prevent destructive competition
Because of consumers' incomplete information, insurance regulators must ensure that -
CORRECT ANSWER>>>>The products are beneficial to consumers and available at an
equitable price
The primary reason insurance is regulated is to - CORRECT ANSWER>>>>Protect
consumers
Regulators help to protect consumers by - CORRECT ANSWER>>>>Reviewing
insurance policy forms to determine whether they benefit consumers and comply with
state consumer protection laws
State legislatures can - CORRECT ANSWER>>>>Set coverage standards and specify
policy language for certain insurance coverage
In addition to protecting consumers against abuses, regulators also try to ensure that -
CORRECT ANSWER>>>>Insurance is readily available
Cancellation restrictions aimed at promoting availability can lead insurers to -
CORRECT ANSWER>>>>Reject more new-business applications, which reduces
insurance availability
The goal of regulation is not to eliminate all insolvencies but rather to - CORRECT
ANSWER>>>>Minimize the number of insolvencies
Regulators are responsible for determining whether insurance rates are high enough to
- CORRECT ANSWER>>>>Prevent destructive competition
,When insurance rate levels are inadequate, some insurers can become insolvent, and
others might - CORRECT ANSWER>>>>Withdraw from the market or stop writing new
business
Possible consequence of destructive competition - CORRECT ANSWER>>>>Insurance
shortage
Who plays an important role in regulation? - CORRECT ANSWER>>>>State regulators
and the NAIC
True or false: state regulators are members of the NAIC - CORRECT
ANSWER>>>>True
Day-to-day regulation of the insurance business is performed by - CORRECT
ANSWER>>>>State insurance departments
The state insurance department falls within the - CORRECT ANSWER>>>>Executive
branch of each state government
State insurance departments ______ insurance laws enacted by the legislature -
CORRECT ANSWER>>>>Enforce
Insurance laws regulate - CORRECT ANSWER>>>>The formation of insurers, capital
and surplus requirements, licensing of producers, investment of funds, financial
requirements for maintaining solvency, insurance rates that can be charged, marketing
and claim practices, taxation of insurers, and the rehabilitation of financially impaired
insurers or the liquidation of insolvent ones
Regulatory activities performed by the state insurance department - CORRECT
ANSWER>>>>Licensing insurers, approving policy forms, holding rate hearings,
performing market conduct examinations, publishing shoppers' guides
Typical state insurance commissioner duties - CORRECT ANSWER>>>>Overseeing
the state insurance department's operation, promulgating orders, rules, and regulations
necessary to administer insurance laws, determining whether to issue business licenses
to new insurers, reviewing insurance pricing and coverage, taking action when
insurance laws are violated, issuing an annual report on the status of the state's
insurance market and insurance department
Proponents of an elective system cite these reasons: - CORRECT ANSWER>>>>An
appointed insurance commissioner is subject to dismissal
An elected commissioner would more likely change the insurance department's stance
An elected commissioner would be keenly aware of the issues important to the public
An elected commissioner is not obligated to any particular group or special interest
, Proponents of an appointing system cite these reasons: - CORRECT ANSWER>>>>An
appointed commissioner has no need to campaign or to be unduly influenced by
political contributors
An appointed commissioner is less likely to be swayed by ill-informed public opinion
than an elected one
An appointed commissioner is more likely to be perceived as a career government
employee interested in regulation
State insurance departments are partly funded by - CORRECT ANSWER>>>>State
premium taxes, audit fees, filing fees, and licensing fees
Major source of funding for state insurance departments - CORRECT
ANSWER>>>>Premium taxes
Premium taxes are designed primarily to - CORRECT ANSWER>>>>Raise revenues
for the state as a whole
National Association of Insurance Commissioners (NAIC) - CORRECT
ANSWER>>>>An association of insurance commissioners from the fifty US states, the
District of Columbia, and the five US territories and possessions, whose purpose is to
coordinate insurance regulation activities among the various state insurance
departments
Coordinates insurance regulation activities among the insurance departments but has
no direct regulatory authority - CORRECT ANSWER>>>>NAIC
The NAIC has a profound effect on - CORRECT ANSWER>>>>The nature and
uniformity of state regulation
The NAIC developed uniform - CORRECT ANSWER>>>>Financial statement forms
that all states require insurers to file
The NAIC collects and compiles - CORRECT ANSWER>>>>Financial information from
insurers and warehouses the financial data for use by insurance regulators
True or false: the NAIC assists state insurance departments by sharing financial
information about insurers that are potentially insolvent and by developing model laws
and regulations - CORRECT ANSWER>>>>True
Serves as both a coordinator and a fail safe mechanism for state insurance regulators
as they oversee nationally significant insurers - CORRECT ANSWER>>>>NAIC's
Financial Analysis Working Group
Model law - CORRECT ANSWER>>>>A document drafted by the NAIC, in a style
similar to a state statute, that reflects the NAIC's proposed solution to a given problem
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