A - Baer & Rendall - stucture of the industry

Question 1

BAER RENDALL

Describe
INDIVIDUAL UNDERWRITERS

Answer 1

• 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)

Question 2

BAER RENDALL

Describe
MUTUAL COMPANIES

Answer 2

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

Question 3

BAER RENDALL

Describe
RECIPROCALS OR INTER-INSURANCE EXCHANGES

Answer 3

• like Lloyd’s but members are exchanging insurance
• must both take AND offer insurance
• Members are individually, not jointly liable

Question 4

BAER RENDALL

5 objectives of IBC

Answer 4

1) Discuss general insurance
2) Collect and analyze statistical information
3) Study legislation
4) Invest in research
5) Promote better public understanding of insurance

Question 5

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

Answer 5

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

Question 6

BAER RENDALL

2 roles of CCIR
Canadian Council of Insurance Regulators

Answer 6

1) to DRAFT LEGISLATION

2) to encourage UNIFORM PRACTICES in the industry with common rules and teaching material for agents

Question 7

BAER RENDALL

5 main areas of focus of the Canadian Insurance Regulation

Answer 7

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

Question 8

BAER RENDALL

3 differences and 3 similarities between
SOCIAL insurance and PRIVATE insurance

Answer 8

—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

Question 9

BAER RENDALL

6 ways Canadian Insurance Legislation promotes Solvency?

Answer 9

1 - control creation of domestic insurers and licensing of foreign insurers
2 - restrict types of investment insurers can make
3 - mandate periodic filing of financial 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

Question 10

BAER RENDALL

2 reasons why insurance industry was singled out for public oversight of solvency

Answer 10

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