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Addendum: for use with Mississippi Life and Health online ExamFX courses and study guide version 20594en/20601, per exam content outline updates effective July 1, 2017.

Please note that effective 7/1/2017, all insurance exams in Mississippi will be administered by a new testing provider, Pearson Vue. For additional information about the exam please review the Candidate Handbook at https://wsr.pearsonvue.com/ms/insurance/

New exam breakdown:

Mississippi Life Producer Examination

75 Total Questions (60 scored; 15 pretest)

Time Limit: 2.5 hours

Passing Score: 65%

Mississippi Accident and Health or Sickness Producer Examination

75 Total Questions (60 scored; 15 pretest)

Time Limit: 2 hours

Passing Score: 65%

Note that the practice tests and the state exam will be broken into two sections: General Knowledge and State Law; however, you will receive one overall score.

The following are additions to the existing text as indicated:

LIFE:

Completing the Application, Underwriting, and Delivering the Policy

1. Underwriting

Stranger-originated Life Insurance (STOLI) and Investor-originated Life Insurance (IOLI)

Stranger-originated life insurance (STOLI) is a life insurance arrangement in which a person with no relationship to the insured (a "stranger") purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies. In other words, STOLIs are financed and purchased solely with the intent of selling them for life settlements.

STOLIs violate the principle of insurable interest, which is in place to ensure that a person purchasing a life insurance policy is actually interested in the longevity rather than the death of the insured. Because of this, insurers take an aggressive legal stance against policies they suspect are involved in STOLI transactions.

Note that lawful life settlement contracts do not constitute STOLIs. Life settlement transactions result from existing life insurance policies; STOLIs are initiated for the purpose of obtaining a policy that would benefit a person who has no insurable interest in the life of the insured at the time of policy origination.

Investor-owned life insurance (IOLI) is another name for a STOLI, where a third-party investor who has no insurable interest in the insured initiates a transaction designed to transfer the policy ownership rights to someone with no insurable interest in the insured and who hopes to make a profit upon the death of the insured or annuitant.

USA PATRIOT Act and Anti-Money Laundering

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, also known as the USA PATRIOT Act was enacted on October 26, 2001. The purpose of the Act is to address social, economic, and global initiatives to fight and prevent terrorist activities. The Act enabled the Financial Crime Enforcement Network (FinCEN) to require banks, broker-dealers, and other financial institutions to establish new anti-money laundering (AML) standards. With new rules in place, FinCEN incorporated the insurance industry into this group.

To secure the goals of the Act, FinCEN has implemented an AML Program that requires the monitoring of all financial transactions and reporting of any suspicious activity to the government, along with prohibiting correspondent accounts with foreign shell banks. A comprehensive customer identification and verification procedure is also to be set in place.

The AML program consists of the following minimum requirements:

• Assimilate policies, procedures and internal controls based on an in-house risk assessment, including:
  • Instituting AML programs similar to banks and securities lenders; and
  • File suspicious activity reports (SAR) with Federal authorities;
• Appointing a qualified compliance officer responsible for administering the AML program;
• Continual training for applicable employees, producers and other; and
• Allow for independent testing of the program on a regular basis.

Suspicious Activity Reports (SARs) Rules

Any company that is subject to the AML Program is also subject to SAR rules. SAR rules state that procedures and plans must be in place and designed to identify activity that one would deem suspicious of money laundering, terrorist financing and/or other illegal activities. Deposits, withdrawals, transfers or any other business deals involving $5,000 or more are required to be reported if the financial company or insurer “knows, suspects or has reason to suspect” that the transaction:

• Has no business or lawful purpose;
• Is designed to deliberately misstate other reporting constraints;
• Uses the financial institution or insurer to assist in criminal activity;
• Is obtained using fraudulent funds from illegal activities; or
• Is intended to mask funds from other illegal activities.

Some "red flags" to look for in suspicious activity:

• Customer uses fake ID or changes a transaction after learning that he or she must show ID;
• Two or more customers use similar IDs;
• Customer conducts transactions so that they fall just below amounts that require reporting or recordkeeping;
• Two or more customers seem to be working together to break one transaction into two or more (trying to evade the Bank Secrecy Act (BSA) requirements); or
• Customer uses two or more money service business (MSB) locations or cashiers on the same day to break one transaction into smaller transactions (trying to evade BSA requirements).

Relevant SAR reports must be filed with FinCEN within 30 days of initial discovery. Reporting takes place on FinCEN Form 108.

Taxes, Retirements, and Other Insurance Concepts

Viatical Settlements

Viatical settlements allow someone living with a life-threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death.

While viatical settlements are not policy options, they are separate contracts in which the insured sells the death benefit to a third party at a discounted rate. There are several important concepts you need to understand about viaticals:

• The insureds are referred to as viators;
• Viatical settlement provider means a person, other than a viator, that enters into a viatical settlement contract;
• Viatical producers represent the providers;
• Viatical brokers represent the insureds.

Viators usually receive a percentage of the policy’s face value from the person who purchases the policy. The new owner continues to maintain premium payments and will eventually collect the entire death benefit.

Life Settlements

The term life settlement refers to any financial transaction in which the owner of a life insurance policy sells a life insurance policy to a third party for some form of compensation, usually cash. A life settlement would require an absolute assignment of all rights to the policy from the original policyowner to the new policyowner.

Policyowners may choose to sell their policies because they feel they no longer need their coverage, or the premium costs have grown too high to justify continuation of the policy. In many cases, however, life settlement transactions are offered to senior citizens who may have a life threatening illness and a short life expectancy. In these situations, the owner may elect to sell the policy to a life settlement provider for an amount greater than what they would receive if they surrendered the policy for cash value.

Definitions

Because Life Settlements are not involved in the establishment of new life insurance coverage, the Life Settlement Act defines terms that are not in conflict with the sale of the original life insurance coverage, but which accurately identify the distinctions in the Life Settlement business. Some of the more important definitions are as follows:

The term business of life settlement refers to any activity relating to the solicitation and sale of a life settlement contract to a third party who has no insurable interest in the insured.

The term owner refers to the owner of the life insurance policy who seeks to enter into a life settlement contract. The term does not include an insurance provider, a qualified institutional buyer, a financing entity, a special purpose entity, or a related provider trust.

Insured is the person covered under the policy that is considered for sale in a life settlement contract.

Life Expectancy is an important concept in life settlement contracts. It refers to a calculation based on the average number of months the insured is projected to live due to medical history and mortality factors (an arithmetic mean).

Life Settlement Contract establishes the terms under which the life settlement provider will pay compensation to the policyowner, in return for the assignment, transfer, sale, or release of any portion of any of the following:

• The death benefit;
• Policy ownership;
• Any beneficial interest; or
• Interest in a trust or any other entity that owns the policy.

Life Settlement Broker is a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract. Life settlement brokers represent only the policyowners, and have a fiduciary duty to the owners to act according to their instructions and in their best interest.

Life Settlement Provider is a person (other than the owner) who enters into a life settlement contract with the owner.

Addendum: for use with Mississippi Property and Casualty online ExamFX courses and study guide version 14042en/14069, per exam content outline updates effective July 1, 2017.

Please note that effective 7/1/2017, all insurance exams in Mississippi will be administered by a new testing provider, Pearson Vue. For additional information about the exam please review the Candidate Handbook at https://wsr.pearsonvue.com/ms/insurance/

New exam breakdown:

Mississippi Property Insurance Examination

75 Total Questions (60 scored; 15 pretest)

Time Limit: 2 hours

Passing Score: 70%

Mississippi Casualty Insurance Examination

75 Total Questions (60 scored; 15 pretest)

Time Limit: 2 hours

Passing Score: 70%

Note that the practice tests and the state exam will be broken into two sections: General Knowledge and State Law; however, you will receive one overall score.

The following are additions to the existing text as indicated:

Policy Provisions and Contract Law

1. Privacy Protection (Gramm-Leach-Bliley)

The Gramm-Leach-Bliley Act stipulates that in general, an insurance company may not disclose nonpublic personal information to a nonaffiliated third party except for the following reasons:

• The insurance company clearly and conspicuously discloses to the consumer in writing that information may be disclosed to a third party.
• The consumer is given the opportunity, before the time that information is initially disclosed, to direct that information not be disclosed to the third party.
• The consumer is given an explanation of how the consumer can exercise a nondisclosure option.

The Gramm-Leach-Bliley Act requires 2 disclosures to a customer (a consumer who has an ongoing financial relationship with a financial institution):

1. When the customer relationship is established (i.e. a policy is purchased); and
2. Before disclosing protected information.

The customer must also receive an annual privacy disclosure, and have the right to opt out, or choose not have their private information shared with other parties.

1. Terrorism Risk Insurance Act (TRIA)

The purpose of the Terrorism Risk Insurance Act (TRIA) was to create a temporary federal program that would share the risk of loss from future terrorist attacks with the insurance industry. The act requires that all commercial insurers offer insurance coverage for acts of terrorism. The federal government will then reimburse the insurers for a portion of paid losses for terrorism.

TRIA defines an act of terrorism as an act certified by the Secretary of the Treasury, in concurrence with the Secretary of State, and the Attorney General of the United States with the following characteristics:

• The act must be violent or dangerous to human life, property, or infrastructure;
• The act must have resulted in damage within the United States, to an air carrier as defined in the US Code, to a US flag vessel or other vessel based principally in the US and insured under US regulation, or on the premises of any US mission;
• The act must have been committed by someone as part of an effort to coerce the US civilian population, to influence US policy, or to affect the conduct of the US government by coercion; or
• The act must produce property and casualty insurance losses in excess of a specified amount.

1. Terrorism Risk Insurance Program Reauthorization Act

The TRIA of 2002 has been amended several times, and the final amendment is the Terrorism Risk Insurance Program Reauthorization Act of 2015, which has further amended and extended the Terrorism Insurance Program through Dec. 31, 2020, and revised several provisions as follows:

• The insurer deductible was set at 20% of an insurer's direct earned premium of the preceding calendar year and the federal share of compensation was set at 85% of insured losses that exceed insurer deductibles until Jan. 1, 2016. After that, the federal share will be decreased by 1 percentage point per calendar year until it reaches 80%;
• The certification process was changed to requiring the Secretary of the Treasury to certify acts of terrorism in consultation with the Secretary of Homeland Security instead of the Secretary of State;
• The aggregate industry insured losses resulting from certified acts of terror which will trigger the federal share of compensation under the Program are now specified as follows:
  • $100 million for 2015;
  • $120 million for 2016;
  • $140 million for 2017;
  • $160 million for 2018;
  • $180 million for 2019; and
  • $200 million for 2020 and thereafter;
• The mandatory recoupment of the federal share through policyholder surcharges increased to 140% (from 133%);
• Revised requirements for mandatory repayment form insurers of federal financial assistance provided in connection with all acts of terrorism.

National Association of Registered Agents and Brokers (NARAB) Reform – this title of the Program amends the Gramm-Leach-Bliley Act to repeal the contingent conditions under which the NARAB may not be established. NARAB is also prohibited from merging with or into any other private or public entity.

In addition, without affecting state regulatory authority, the NARAB is required to provide a mechanism for the adoption and multi-state application of requirements and conditions pertaining to

• Licensing, continuing education, and other qualifications of non-NARAB insurance producers;
• Resident or nonresident insurance producer appointments;
• Supervision and disciplining of such producers; and
• Setting of licensing fees for insurance producers.

In addition to that, the NAIC Property and Casualty Insurance Committee and its Terrorism Insurance Implementation Working Group (TIIWG) recently adopted a Model Bulletin, including an expedited filing form intended to help state insurance regulators advise insurers about regulatory requirements related to providing terrorism insurance under the revised program.

Types of Casualty Policies, Bonds, and Related Terms

1. Commercial General Liability

Cyber Liability and Data Breach – added to Professional Liability seccion

The ISO has recently introduced a new line of insurance that covers cyber risks, called the Internet Liability and Network Protection Policy. The policy includes 5 separate agreements listed below:

1. Website publishing liability — provides coverage against Internet-related publishing perils, including libel, and copyright, trademark, or service mark infringement;
2. Network security liability — protects the policyowner against claims for failing to maintain the security of a computer system;
3. Replacement or restoration of electronic data — covers the cost of replacing or restoring data lost due to a virus, malicious instruction, or denial-of-service attack;
4. Cyber extortion — covers expenses, including ransom payments, incurred from extortion threats; and
5. Business income and extra expense — provides coverage for expenses incurred as a result of an extortion threat or e-commerce incident.

Each agreement offers its own aggregate limit of coverage, subject to an overall policy limit. Defense expenses are included within the policy limits. All coverage is written on a claims-made basis, and allows the additional of endorsements for worldwide protection.

1. Surety Bonding

Surety Bonds

A surety is someone who guarantees the performance of someone else. The surety issues a bond on one party who must perform or not perform as required and will financially compensate the other party in the event the contractual obligations are not met.

Surety bonds are not insurance in the traditional sense. Unlike insurance, surety bonds do not expect to pay for losses. Instead, they guarantee specific duties or obligations will be fulfilled. In the event the duty is not performed as promised, the surety will pay the bond amount to the person to whom the promise had been made and broken. A bond is written for a set limit, and the surety will be liable only for this amount of the limit. This limit is referred to as the penalty.

Fidelity

Fidelity bonds are used to guarantee honesty and trust as opposed to surety bonds that guarantee performance. A fidelity bond is crime coverage, or often called honesty insurance. It protects the business from employee larceny, embezzlement, forgery, theft, and identity theft, to name just a few. For example, the bond covers a bonded employee for dishonesty. It can cover an individual or a group for loss of real property, personal property, money, securities, or merchandise.

There are several insuring agreements to a fidelity bond depending on the scope of coverage needed by the company. Following are typical insuring agreements for a fidelity bond:

• Forgery or alteration
• Inside the premises – theft of money and securities
• Inside the premises – robbery or safe burglary of other property
• Outside the premises – theft of money and securities, and robbery of other property
• Computer fraud

The insuring agreement may also include additional coverages as needed, such as coverage on partners, extortion threats to persons, extortion threats to property, and registered representatives’ coverage.

The fidelity bond period is the term of coverage by stating the time and date for the effective and expiration dates.

The discovery period is the span of time after bond termination to discover any losses that occurred during the term of the bond. Some policies may not contain a clause allowing for a discovery period after the bond terminates but do allow the right to purchase a discovery period after termination for an additional premium. Other policies contain a clause allowing for a discovery period. A 1-year period after termination is the most common discovery period, and in some cases it is required. It should allow any potential loss during the bond term to be known.

A discovery bond is available that allows a buyer to protect against undiscovered losses that occurred before the bond was issued. This generally applies to a first-time buyer.

Mississippi Property Insurance Laws

1. Cancellation/Nonrenewal
2. Proof of Notice – section is revised as follows:

Where the reason for cancellation does not accompany or is not included in the notice of cancellation, the insurer must specify in writing the reason for such cancellation, upon written request of the named insured mailed or delivered to the insurer not less than 15 days prior to the effective date of cancellation. Such reason must be mailed or delivered to the named insured within 5 days after receipt of such request.

Proof of mailing a notice of cancellation or nonrenewal to the named insured (at the address shown on the policy) by a certificate of mailing is considered sufficient proof of notice.

1. Applications and Binders
2. Binding Coverage – section is revised as follows:

In the course of the sale or issuance of any automobile liability insurance policy, insurers must inform the named insured or applicant, on a form approved by the Department of Insurance, of the benefits of and reasons for electing to purchase uninsured motorist coverage. If the insured named in the policy wishes to reject uninsured motorist coverage, the form must be signed by or on behalf of the named insured. If this form is signed by or on behalf of the named insured, it is binding upon all persons insured by the automobile liability insurance policy and it is presumed that there was an informed, knowing rejection and waiver of uninsured motorist coverage.

Mississippi Casualty Insurance Laws

1. Automobile
2. Financial Responsibility

To operate a motor vehicle in Mississippi, the owner (or operator) must show proof that they are financially responsible for injuries or damages from a motor vehicle accident arising out of their ownership, maintenance or operation of that vehicle.

They may prove this responsibility by posting a bond or certificate of deposit for $15,000, or by purchasing a motor vehicle liability insurance policy written with limits of at least:

• $25,000 per person for bodily injury or death to 1 person in a single accident;
• $50,000 for bodily injury or death to 2 or more persons in a single accident; and
• $25,000 for damage to property of others arising from a single accident.

Failure of the driver to have an insurance card within the vehicle is considered a misdemeanor, and is punishable by a fine of $500 and suspension of driving privileges for 1 year (or until the driver provides proof of insurance). However, if, at the hearing, the driver is able to show proof of motor vehicle liability insurance, the fine will be reduced to $100.

1. Uninsured and Underinsured Motorist

No auto liability insurance policy may be issued unless it contains an endorsement or provision undertaking to pay the insured all sums which he or she is legally entitled to recover as damages for bodily injury or death from an owner or operator of an uninsured motor vehicle, within limits no less than those set forth in the Mississippi Motor Vehicle Safety Responsibility Law. However, at the option of the insured, the Uninsured Motorist limit may be increased to limits not to exceed those provided in the policy of bodily injury liability insurance of the insured. The insured may reject this coverage in writing.

An auto liability policy must also offer Uninsured Motorist property damage coverage in an amount not less than the amount set forth in the Vehicle Safety Responsibility Law (25/50). The property damage provision may provide an exclusion for the first $200 of such property damage. The insured may reject this coverage in writing.

The insured may reject the Uninsured Motorist property damage coverage provision and retain the Uninsured Motorist bodily injury coverage provision, however, no insured may have Uninsured Motorist property damage coverage unless he or she also has Uninsured Motorist bodily injury coverage.