A - Baer & Rendall - stucture of the industry Flashcards
BAER RENDALL
4 types of insurance carriers
- Individual Underwriters
- Joint Stock Companies
- Mutual Companies
- Reciprocal or Inter-Insurance Exchange
BAER RENDALL
Describe
INDIVIDUAL UNDERWRITERS
- such as Lloyds of London
- not an insurer, do not have any liability of policies
- UW members who accept risk on their own account (similar to a stock exchange)
BAER RENDALL
Describe
JOINT STOCK COMPANIES
for-profit, owned by stockholders who contribute the capital
BAER RENDALL
Describe
MUTUAL COMPANIES
Owned by the customers with policyholder voting control
Some profits distributed as dividends, rest retained in reserves
Many insurers are demutualizing into joint stock companies
BAER RENDALL
Describe
RECIPROCALS OR INTER-INSURANCE EXCHANGES
- like Lloyd’s but members are exchanging insurance
- must both take AND offer insurance
- Members are individually, not jointly liable
BAER RENDALL
5 objectives of IBC
1) Discuss general insurance
2) Collect and analyze statistical information
3) Study legislation
4) Invest in research
5) Promote better public understanding of insurance
BAER RENDALL
3 levels of regulation
Which level of regulation is the favored one (legislation, regulation, guidelines)?
Provide 3 advantages and 2 disadvantages to that level of regulation
1) legislation
2) regulation (from Lieutenant Governor in Council)
3) guidelines (from superintendent)
GUIDELINES
Advantages
1) flexible
2) less obtrusive
3) Less likely to be misinterpreted in court
4) less likely to be the subject of litigation
Disadvantages
1) can be vague
2) can be obtusely worded
often making it impossible to know if guidelines have been breached
BAER RENDALL
2 roles of CCIR
Canadian Council of Insurance Regulators
1) to DRAFT LEGISLATION
2) to encourage UNIFORM PRACTICES in the industry with common rules and teaching material for agents
BAER RENDALL
5 main areas of focus of the Canadian Insurance Regulation
1) Solvency
2) Canadianization (foreign cies to maintain sufficient assets in Canada to protect canadian policyholders and to avoid expatriation of large amounts of capital)
3) Tax Revenues
4) Promote honesty and competence of intermediaries
5) Improving insurance contracts and promoting marketing integrity
BAER RENDALL
Discuss the impact of government revenue as an area of focus of Canadian Insurance Regulation
Used to be really important in the 1800’s
Impact of tax revenue declined over time
BAER RENDALL
3 differences and 3 similarities between
SOCIAL insurance and PRIVATE insurance
—Difference—
1) Social is UNIVERSAL while Private is RISK-SELECTING
2) NO NEED FOR ELABORATE RULES TO GUARANTEE SOLVENCY for social insurance
3) intermediaries are civil servants (for social insurance), hence a different administrative and judicial supervision
Similarities
—Similarities—
1) similar rules to protect integrity of insurance fund
2) common problem of defining what events are covered
3) common difficulty to establish efficient claim process
BAER RENDALL
6 ways Canadian Insurance Legislation promotes Solvency?
1 - control creation of domestic insurers and licensing of foreign insurers
2 - restrict types of investment insurers can make
3 - mandate periodic filing of insurance info
4 - give govt authority to ensure compliance
5 - creation of rating bureaus to ensure actuarial soundness of UW decisions
6 - creation of boards to encourage minimum or adequate rates that are reasonable and non-discriminatory
BAER RENDALL
2 reasons why insurance industry was singled out for public oversight of solvency
1 - large nb of bankruptcies of insurers which led to concerns that policyholders would not have their obligations paid for
2 - short term price competition not in public’s long term interest, to ensure their obligations are paid for
