Class 3

Question 1

Reasons for Insurance Regulation

Answer 1

♠ Maintaining Insurer Solvency (Possible financial insecurity if insurers fail)
♠ Inadequate Consumer Knowledge
♠ Ensuring Reasonable Rates
♠ Making Insurance Available

Question 2

Inadequate Consumer Knowledge (Reasons for Insurance Regulation)

Answer 2

♠ Complex product
♠ Difficult to compare and determine monetary value
♠ Protection needed against unethical agents

Question 3

Historical Development of Insurance Regulation

Answer 3

♠ Early efforts
♠ Paul v. Virginia
♠ South-Eastern Underwriters Association Case
♠ State versus Federal Regulation
♠ Public Law 15 – McCarran-Ferguson Act

Question 4

Early Efforts (Historical Development of Insurance Regulation)

Answer 4

♠ State-chartered companies - an association formed by investors or shareholders for the purpose of trade, exploration, and colonization.
♠ State insurance commissions

Question 5

Paul v. Virginia (Historical Development of Insurance Regulation)

Answer 5

♠ Ruled that insurance was not commerce

♠ Defeated a challenge to state regulation

Question 6

South-Eastern Underwriters Association Case -

Historical Development of Insurance Regulation

Answer 6

♠ Reversed the Paul decision – court ruled that insurance was interstate commerce when conducted across state lines and was subject to federal regulation
♠ Cast doubt on the legality of private rating bureaus and powers of the state to regulate and tax the insurance industry

Question 7

Public Law 15 – McCarran-Ferguson Act

- (Historical Development of Insurance Regulation)

Answer 7

♠ Reaffirmed states’ responsibility to regulate and tax the insurance industry
♠ Conditionally exempted the insurance industry from federal antitrust laws

Question 8

Methods for Regulating Insurers

Answer 8

♠ Legislation
♠ Courts
♠ State Insurance Dept.

Question 9

Legislation (Methods for Regulating Insurers)

Answer 9

♠ State laws:

♠ Federal laws;

Question 10

Courts (Methods for Regulating Insurers)

Answer 10

♠ Constitutionally of state insurance laws
♠ Interpretation of policy clauses and provisions
♠ Legality of administrative actions by state departments

Question 11

Areas That Are Regulated

Answer 11

♠ Formation and Licensing of Insurers
♠ Financial Regulation
♠ Rate Regulation
♠ Policy Forms
♠ Sales Practices and Consumer Protection

Question 12

Shortcomings of State Regulation (State versus Federal Regulation)

Answer 12

An increasing drag on efficiency and competitiveness.

- Repeal of the McCarran-Ferguson Act

Question 13

McCarran-Ferguson Act (MFA) in 1945

Answer 13

Delegated the regulation of insurance to the states.

Question 14

Advantages of Federal Regulation (State versus Federal Regulation)

Answer 14

♠ Coordination among the states

♠ Uniform approach saves money on bureaucracy

Question 15

Advantages of State Regulation State versus Federal Regulation)

Answer 15

State regulation does protect the industry from bad regulation in the sense that if a state were to make a serious error regarding regulation, the negative effects of the error will likely be most felt in the state with the “bad” regulation.

Question 16

Current Issues in Insurance Regulation

Answer 16

♠ Convergence of Financial Services
♠ Increase in Mergers and Acquisitions
♠ Growth of the Internet and E-Commerce
♠ Insolvency of Insurers
♠ Quality of Insurance Regulation
♠ Deregulation of Commercial Lines
♠ Texas Unfair Claims Settlement  Act
♠ Texas Prompt Payment of Claims Requirements

Question 17

Texas Unfair Claims Settlement Act

Answer 17

Insurance companies violate the Texas Unfair Claims Practices Act when they: Knowingly misrepresent material facts or policy provisions related to coverage. Fail to attempt in good faith to effectuate a prompt, fair and equitable settlement of a claim with respect to which their liability has become reasonably clear.