“Business of Insurance” Flashcards
business of insurance is subject to State regulation except in the following circumstances
- Sherman act still applies for boycott, coercion, and intimidation. 2. Federal anti-trust laws applied to the extent that state laws did not regulate such activities. 3. Federal laws enacted specifically to regulate the business of insurance preempted any state laws applying to the same activities addressed by the federal laws
Group Life and Health Insurance Co. vs. Royal Drug Co
.: Spreading and underwriting of risk, Direct connection between insurer & insured, Activity needs to be exclusive to entities within insurance industry
Current Definition of business of insurance
-Any activity that has one or more of the following characteristics
- Insurer spreads or underwrites the policyholder’s risk
- Insurer and the insured have a direct contractual agreement
- Activity is unique to entities within the insurance industry
-Business of insurance receives protection from federal intervention as allowed under McCarran
Federal Intervention in the “Business of Insurance”
- Risk Retention Act
- National Flood Insurance Program
- NFIP established in 1968 as a federal response to a private insurance industry uninsurable risk, under direction of FEMA, P/C insurers are involved through Write-Your-Own (WYO) flood insurance program
Product Liability Risk Retention Act
- 3 principal causes of Product Liability insurance price and availability crisis= Questionable ratemaking and reserving practices of insurers, Unsafe products, Uncertainties in the tort and legislation system
- in many cases, coverage was not available at all (insurers were not willing to provide coverage because of losses)
- Product Liability Risk Retention Act of 1981 enacted to address ratemaking and reserving practices problems
- Enabled product manufacturers, wholesalers, distributors, and retailers to form their own risk retention groups to spread and assume their products and completed operations exposures
- Groups licensed in one state and permitted to operate in any other
- It was necessary for federal legislation because individual states can only control insurance affecting their respective states. Risk retention groups often cross state boundaries and need to be able to control the insurance coverage of all members
- Federal laws readily permitted risk retention groups to form to address availability crisis & expanded to permit risk retention groups to insure commercial liability exposures other than products
Federal Regulation of the Insurance Industry
- SEC requirements
- Federal Taxation of Insurers
- Employee Retirement Income Security Act of 1974
Influence of the Courts
- Can change how laws, rules & regulations apply to insurers = If the court decision’s interpretation of an insurance law differs from previous interpretations, the insurance industry will experience regulatory change
- Policy Language: Great effect due to industry use of standardized policy language, Court’s interpretation for one situation can affect all insureds
- contract of adhesion
- doctrine of reasonable expectations
contract of adhesion
Contract drawn up by only one party, insurer and the insured simply purchases the policy -> Ambiguous language will be interpreted in favor of insured
Doctrine of reasonable expectations
insured’s reasonable expectation of coverage will be honored
A typical state insurance regulatory system contains the following
- Licensing requirements = insurers need to obtain a certificate of authority before conducting business
- Producers must be licensed before they can solicit sale of insurance (this ensures state quality control) - Reporting and filing requirements: Annual/Quarterly Statements, Policy forms/rules/rates
- Periodic examinations: Examine financial condition and records of insurers operating in state -> Ensure financially sound and complying with regulatory requirements
- Power to impose sanctions when fail to comply with regulatory requirements
