Historical Development of Insurance Regulation Flashcards
three purposes of insurance regulation
- protect consumers who don’t fully understand insurance products
- prevent insurer insolvency
- promote competition and correct market imperfections
Paul v. Virginia
(1869)
- Virginia denied Samuel Paul’s application to represent New York insurers in Virginia
- Paul sold policies anyway, was arrested, and his conviction was upheld in appeal to U.S. Supreme Court
- court ruled “issuing a policy of insurance is not a transaction of commerce” so insurance is a locally delivered contract not subject to federal regulation
National Insurance Convention + four actions
formed 1871 by representatives from 19 states; later renamed NAIC
- set forth regulators’ goals
- designed a uniform accounting statement
- adopted guidelines for insurer taxation
- created first model law
Sherman Antitrust Act
(1890)
prohibits collusion in attempts to gain monopoly power
Clayton Antitrust Act
(1914)
makes activities that lessen competition illegal, e.g. price discrimination, exclusive dealing
Robinson-Patman Act
(1936)
amendment to Clayton, prohibits price discrimination in most cases
SEUA Decision
(1944)
- SEUA was a compact controlling 90% of the fire and allied insurance market in southeastern states
- Missouri attorney general filed a complaint against SEUA, resulting in criminal indictments for antitrust activities
- U.S. District Court dismissed the case based on Paul v. Virginia
- U.S. Supreme Court overturned Paul v. Virginia, ruling that insurance is commerce under the Constitution
attorney general allegations against SEUA (4)
- fixing premium rates
- fixing agent commissions
- using boycott, coercion, and intimidation
- withdrawing agents’ rights if representing non-SEUA companies
arguments considered by Supreme Court in SEUA decision (3)
- insurance is not a business that is distinct in each state
- intangible products are subject to federal regulation
- other businesses make contracts in states where they don’t have headquarters; they are subject to federal regulation
McCarran-Ferguson Act
(1945)
Returned regulation of “business of insurance” to states, except:
* federal antitrust laws apply to insurance if the specified activities are not regulated by the state
* Sherman Act applies to use of boycott, coercion, or intimidation
* federal laws that apply exclusively to the insurance industry supersede state regulation
two questions not addressed by McCarran-Ferguson Act
1) What does “regulated” mean?
2) What constitutes “business of insurance”?
NAIC response to McCarran-Ferguson Act (4)
model laws to create a legal framework to strengthen state regulation and to limit intervention by federal government:
- formation, licensing and regulation of rating organizations
- rates should not be excessive, inadequate or unfairly discriminatory
- requirements for filing and approval of rates
- prohibit anti-competitive activities, including rebating
three provisions of Gramm-Leach-Bliley Act
(1999)
- allows affiliations but specifies that each segment of financial services is regulated separately; national banks cannot have subsidiaries that underwrite insurance
- requires financial institutions to explain their information-sharing practices and safeguard sensitive data
- requires states to facilitate agents’ ability to operate in more than one state
concerns of recent insurance regulation with examples (3)
- inequitable treatment of consumers - Unfair Claims Settlement Practices Act and Unfair Trade Practices Act (1972)
- insurer insolvencies - guaranty funds, IRIS and FAST, accreditation program for DOIs
- availability and affordability of insurance - FAIR plans, captives, National Flood Insurance Act, TRIA
regulatory innovations by New York in the 1800s (4)
- first DOI
- premium tax on insurers from other states
- process to manage liquidation
- unearned premium reserve law
