Chapter 8 Flashcards
what is government regulation of insurance ?
state and federal
what is the National Association of Insurance Commissioners?
provides expertise, data and analysis for insurance commissioners to effectively regulate the industry and protect consumers
when was the NAIC founded?
in 1871
what is governed by the chief insurance regulators from the 50 states, DC and five US territories to coordinate regulation of multi-state insurers?
the NAIC
what did the McCarran-Ferguson Act of 1945 do?
established that insurance should be regulated and taxed by the states
what did the McCarran-Ferguson Act of 1945 say about anti-trust laws?
anti trust laws do not apply to insurance (with some exceptions)
what act eliminated barriers between insurers and banks?
Financial Modernization Act of 1999 (Gramm-Leach-Bliley Act)
what act said insurers can have banking operations and banks can have insurance operations?
Financial Modernization Act of 1999
what act led to several mergers and acquisitions (Travelers and Citigroup)?
Financial Moderation Act of 1999
what act is frequently cited as a contributor to the financial crisis?
Financial Modernization Act of 1999
what did the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 do?
established general federal oversight of the insurance industry
what act created the Financial Stability Oversight Council (FSOC)?
Dodd-Frank Wall
who has the authority to treat systemic risk?
financial stability oversight council
who can classify non-bank financial companies as “systemically important financial institutions”?
financial stability oversight group
what are the goals of insurance regulation?
-maintain insurer solvency
-educate consumers
-ensure reasonable rates
-make insurance available
what are worthless if the insurer goes bankrupt?
insurance contracts
why do we educate consumers?
prevent unethical insurers or agents from taking advantage of consumers
why do we make insurance available?
to have fair access to insurance requirements (FAIR Plans)
what areas are regulated?
-formation and licensing of insurers
-solvency regualtion
-rate regulation
-policy forms
-sales practices and consumer protection
-taxation of insurers
what is a domestic insurer?
domiciled in the state
what is a foreign insurer?
charter (domiciled) in another state, but licensed to operate in the state
what is an alien insurer?
chartered in a foreign country, but licensed to operate in state
what must be sufficient to offset liabilities ?
assets
what is a safety net for if an insurance company goes bankrupt?
state guaranty funds
what is prior-approval rate regulation?
rates must be filed and approved by the state before being used
what is file and use rate regulation ?
rates must be filed with the state, but can be used immediately
what are other methods to rate regulation?
modified-prior-approval, use and file, state made rates and no filing required
what must be filed with the state department of insurance ?
policy forms
what is the purpose of policy forms?
to protect consumers form misleading, deceptive or unfair provisions
what do all states require?
licensing of brokers and agents
continuing education for brokers and agents
what unfair trade practices are prohibited?
twisting and rebating
what is twisting?
inducement of a policyholder to drop an existing policy and replace it with a new one that provides little or no economic benefit to the client
what is rebating?
practice of giving an individual a premium reduction or some other financial advantage not stated as an inducement to purchase the policy
what do insurers pay on gross premiums received from policyholders?
state tax
what is market conduct?
refers to the marketing practices of insurers and agents that involves interaction with insureds. claimants or consumers
what are examples of market conduct?
sales of insurance policies, advertising of insurance products, underwriting and rating
who conducts examinations of insurers?
state departments of insurance
what does market conduct examinations protect consumers from?
-sale of unsuitable insurance products
-misrepresentation of coverage
-excessive sales pressure
-rates that are unfairly discriminatory
-denial of legitimate claims
-improper termination of policies
what are arguments for federal regulation?
-decrease compliance costs
-increase competition
-increase innovation
-more effective negotiation of international insurance agreements
-more effective treatment of systemic risk
what are the arguments for state regulations?
-Needs of each state are different
-Federal regulation in historically inefficient
-Transition to federal would be costly and require dual regulation for a short time
-The national association of insurance commissioners already advocates for uniformity
-Insurers can innovate by experimenting in different states
-Unknown consequences of federal regulation
