Insurance Chapter 5

National Conference of Insurance Legislators

an association of state insurance legislators.

National Association of Insurance Commissioners

a voluntary association of state insurance regulatory officials that is involved in financial examinations of insurers and develops model insurance laws and regulations.

Model law

a draft bill-the suggested wording of a new law - for consideration by state legislators. Any state may choose to adopt a model bill or to adopt it with modifications.

Model regulation

a draft regulation that may be implemented by a state insurance department if a model law is passed.

Prior approval law

a law regulating insurance rates that requires proposed rates be approved by the regulatory authority before they may be used by the insurer.

File-and-use law

a law regulating insurance rates that allows insurers to file their rates with the regulatory authority and immediately begin to use those rates unless/until the regulatory authority disapproves the rates.

Flex-rating law

a law regulating insurance rates that requires regulatory approval of new rates only if they differ from the existing rates by at least some specified percentage, such as 5 or 10 percent.

Open competition

the reliance mainly on competitive forces in the insurance marketplace to produce acceptable insurance rates.

Legal reserve

the minimum amount of reserve, as specified by state law, that a life insurer must maintain to meet its assumed future claim costs under a block of policies. It is discounted for future premium and investment income under those policies.

Unearned premium reserve

in property and liability insurance, an insurer's liability for future claims or premium refunds, as measured by the proportion of the written premiums for those policies that the insurer has not yet earned by providing protection for the full policy peri

Nonadmitted asset

an asset of an insurer that is not permitted by regulatory authorities to be counted as an asset for Annual Statement purposes.

Unfair trade practices

insurance practices prohibited by a state unfair trade practices act, such as rebating, twisting, misappropriation, commingling of funds, and misleading advertising. Violators are subject to penalties that include suspension or revocation of licenses.


the usually illegal practice of returning a part of the premium to the policyowner as a price cutting sales inducement.


the illegal practice in life insurance of using misrepresentation to induce a policyowner, to his or her disadvantage, to replace a life insurance policy with a new one.


the unlawful retention of funds that belong to someone else.

Commingling of funds

an unfair trade practice that occurs when an agent mixes the insured's or insurer's funds with the agent's personal funds.

Unauthorized entity

an insurance company that has not gained approval to place insurance business from a department of insurance in the jurisdiction where it or a producer wants to sell insurance.

Premium tax

a tax levied by a state on an insurer's gross insurance premiums.


the process, overseen by an insurance commissioner, of restoring an insurance company to financial stability.

Guaranty fund

a state fund that at least partially protects consumers against the insolvency of insurers. The typical fund assesses solvent insurers to pay the unpaid claims of insolvent companies.