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
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