USAA API STUDY GUIDE WITH CORRECT ANSWERS .

USAA API STUDY GUIDE WITH CORRECT ANSWERS . Describe what happened in the case of Paul vs. Virginia. Include proximate dates and court decisions. - Answer-> This was the first case to regulate insurance. Paul challenged the right of the state to regulate insurance by refusing to obtain a license from the state. When he continued to sell insurance w/o a license, he was arrested and fined $50. The case went all the way to Supreme Court and was finally decided in 1869, that insurance wasn't interstate commerce. Describe the importance of the US vs South Eastern Underwriters association case and how it changed insurance. - Answer-> After 75 years the federal govt was tested again on regulating insurance. In 1942, the Attorney General of the US filed a brief on the Sherman act against the SEUA, a cooperative rating bureau, alleging that the bureau constituted a combo in restraint of trade. The decision (1944) reversed its decision of Paul vs. Virginia, stating that insurance is interstate commerce and is therefore subject to regulation by the fed govt. This decision stands today. What is the McCarran Ferguson Act? What is another name for it? - Answer-> A bill that became law on March 9, 1945. Congress insisted that it was the right of the Federal government to regulate the insurance industry but stated in the act that the federal government would not regulate insurance as long as the states did an adequate job of regulating the industry. Public law 15 provided that the Sherman Act would continue to apply to boycott, coercion, or intimidation. A.K.A as Public law 15 What does NAIC stand for, and what is its function? - Answer-> National Association of Insurance Commissioners who drafted the McCarran-Ferguson Act in 1945. The NAIC is an organization composed of insurance commissioners from all 50 states, the district of columbia and the 4 US territories. Resolves insurance regulatory problems. They are active in the formation and recommendation of model legislation and regulations designed to bring uniformity from state to state and simplify the marketing of insurance. How is an insurance company able to protect such a large number of people who could potentially suffer a loss? - Answer-> The law of Large Numbers What does indemnify mean? - Answer-> Also known as reimbursement) is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and isn't allowed to gain financially because of the existence of an insurance contract. The purpose of insurance is to restore, but not let an insured or a beneficiary profit from the loss. What are the elements of insurable risk? - Answer-> 1. Financial (a monetary interest) 2. Blood (a relative) 3. Business (a business partner) What are five methods of risk management? What are their definitions? - Answer-> Avoidance - Eliminate exposure to a loss. (effective method) Retention - Planned assumption of risk by an insured through the use of deductibles, co-payments, or self-insurance. Retention is used to reduce expenses and improve cash flow. Also to Increase control of claim reserving and claims settlements and to fund for losses that can't be insured. Sharing - dealing w/risk for a group of people or businesses w/the same or similar exposure to loss to share the losses that occur within that group. Reduction - help detect problems early. Transfer - most effective way to handle risk. Loss is borne by another party. Name three sources of liability losses? - Answer-> 1. A court if it awards legal damages to a person from an organization responsible for negligently injuring that person. 2. The cost of a legal defense. 3. Loss prevention arising from potential legal liability. What are the 3 types of hazards? What are they? - Answer-> Physical hazards are those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it. Moral hazards refers to those applicants that may lie on an app for insurance, or in the past, have submitted fraud claims against an insurer. Morale hazard refers to an increase in the hazard presented by a risk, arising from the insured's indifference to loss because of the existence of insurance. Explain the concept of adverse selection. - Answer-> The insuring of risks that are more prone to losses than the average risk. Poorer risks tend to seek insurance or file claims to a greater extent than better risks. To protect themselves insurance companies have an option to refuse or restrict coverage for bad risks, or charge them a higher rate for insurance coverage. When studying groups, what happens to predictability when the size of the group increases? What does this tell us about any individual? - Answer-> What is a contract and what is its purpose? - Answer-> a document between a policyowner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events. Describe the concept of consideration on the part of an insured and how it differs from consideration on the part of an insurer. - Answer-> The consideration on the part of the insured is the payment of premium and the representations made in the app. The consideration on the part of the insurer is the promise to pay in the event of a loss. What is a fraternal benefit society? - Answer-> An organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government. What are private and govt insurers and what is the difference between private and govt insurers? - Answer-> Private insurance companies may offer many lines of insurance. They may formed as stock, mutual, reciprocals or fraternal insurers, and they must be authorized to transact insurance by the state insurance dept. Gov provides insurance in those areas where private insurers either can't or won't write insurance. Those insurance programs provided by the gov are commonly called social insurance, such as Medicare, Social Security, Federal Crop insurance and National Flood Insurance. Major difference between Gov insurance and Private is that the gov programs are funded w/taxes and serve national and state social purposes, while private policies are funded by premiums. Who regularly publishes guides to insurance companies' financial integrity? - Answer-> What is an exclusive agency system? - Answer-> 1 agent represents 1 company Exclusive Commissions on personal sales Renewals can only be placed with the appointing insurer What are the three types of agent authority? - Answer-> Express, Implied, Apparent What does express, implied and apparent authority mean? - Answer-> Express Authority is the authority a principal intends to grant to an agent by means of the agent's contract. It is the authority that is written in the contract. Implied authority is authority that is not expressed or written into the contract, but which the agent is assumed to have in order to transact the business of insurance for the principal. Is incidental to and derives from express authority since not every single detail of an agent's authority can be spelled out in the written contract.