Class 25 Flashcards
general justifications for government regulations of any industry
- respond to imperfect market
- info limitations
- excess monopoly power
- public policy rationale
justifications for gov. intervention w/ insurance regulation
- insurance is integral to business and personal activities
- insurance involves a long-term relationship (promise)
benefit of insurance v. gov.
- slow from gov.
- moral hazard when from gov.
intended outcomes of insurance regulation/areas that are regulated
- ability to fulfill promise to compensate for losses in the future
- access to insurance (regulates pricing and availability of insurance)
- proper behavior of both insurers and policyholders (focus on insurers)
ensure insurer’s ability to fulfill promise to compensate for losses in the future
- prevent insolvency
- protect policyholder once insolvency has occurred (guarantee)
what are the capital requirements?
- seek independence of exposures
- require high asset quality (risk) and value
- prefer accurate and low volatility of estimated liabilities
- need to match assets with liabilities
- identify and manage other risk sources (poor investments)
guarantee association
- set up by state
- all other insurance co.s pay for losses by consumer if their insurance co. becomes bankrupt
ensure access to the insurance market
- residual pools (programs required by gov. to provide coverage)
- underwriting restrictions (limit ability to deny coverage)
- pricing or rate making (rates = the price of coverage per unit of coverage)
how is pricing/rate making regulated?
needs to be:
- adequate
- not excessive
- not unfairly discriminatory
adequate
premiums are high enough to cover claims and expenses to prevent insolvency
ensure proper behavior
licensing and trade practices
licensing
a license is required to have permission to conduct business
admitted insurer
meets all state regulations
non-admitted insurer
- often do cyber insurance
- barely regulated
domestic
home state
foreign
out of state
alien
out of country
trade practices
activities that may lead to fines, penalties, loss of license, if not done properly
types of trade practices that are regulated
- claims handling
- advertising
- sales practices
- policy forms
