USAA API QUESTIONS & 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 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.
