INSURANCE ACTS Flashcards
SECT A: RATE FILINGS
APPROACHES TO FILING RATES (6)
- STATE MANDATED RATES - MUST USE RATES SET BY STATE
- PRIOR APPROVAL - FILE, WAIT TO GET STATE APPROVAL OF RATE BEFORE USING
- FILE & USE - USE WITHIN A PERIOD OF FILING
- USE & FILE - USE IMMED AND FILE WITHIN PERIOD OF USE
- FLEX - IF RATE CHANGE > THRESHOLD, FILE & USE; O/W USE & FILE
- NO FILING - OPEN MARKET/COMPETITION WILL SET FAIR RATES
SECT A: RATE FILINGS
BASES FOR RATE CHANGE DISAPPROVAL (5)
- REGULATORY - FAILURE TO MEET MINIMUM SOLVENCY STANDARDS
- REGULATORY - ILLEGAL
- REGULATORY - CONTRARY TO PUBLIC INTEREST
- ACTUARIAL - UNFAIRLY DISCRIMINATORY
- ACTUARIAL - EXCESSIVE/INADEQUATE
SECT A: INSURANCE ACTS
BUSINESS OF INSURANCE - UNIQUE CHARACTERISTICS
- LICENSING OF AGENTS & BROKERS
- SETTING OF RATES
- SELLING & ADVERTISING OFPOLICIES
- INSURER UNDERWRITES POLIYHOLDER RISK
- CONTRACTUAL AGREEMENT BETWEEN INSURER & POLICYHOLDER
SECT A: INSURANCE ACTS
PAUL V VIRGINIA
Business of insurance is NOT interstate commerce
• Insurance contracts transactions are delivered locally
SECT A: INSURANCE ACTS
SHERMAN ANTITRUST ACT
SHERMANOPOLY BIC
• Prohibits collusion via Boycott, Intimidation, Coercion to gain monopoly power
• Application of this act repealed in insurance => SEUA formed
SECT A: INSURANCE ACTS
CLAYTON ANTITRUST ACT
Illegal PTEM activities
• Identified illegal activities
1. price discrimination
2. tying products
3. exclusive dealings
4. merger of competitors
SECT A: INSURANCE ACTS
ROBINSON-PATMAN ACT
Price discrimination okay
• If it can be shown that the price differential is a result of operational efficiencies from “competing in good faith”
SECT A: INSURANCE ACTS
SEUA SUPREME COURT RULING
Business of insurance is subject to Sherman Antitrust Act
• Q1: Did Congress intend that the Sherman act apply to fire insurance? YES
• Q2: Do insurance transactions that stretch across state lines constitute “commerce among the several states”, which is subject to the Commerce Clause? YES
o Individuals from different states can buy insurance from the same insurance company
o Intangible products (electrical pulses of telegraphs) are subject to Congressional regulation
o Non-insurance business contracts sold outside of HQ state are subject to Congressional regulation
o 18/200 members domiciled in only 1 of 6 SEUA states
SECT A: INSURANCE ACTS
MCCARRON-FERGUSON ACT
State vs federal regulation of insurers
• Antitrust acts apply to business of insurance
• States have primary regulatory control over business of insurance, except
1. Antitrust acts apply to business of insurance antitrust activities, including Sherman Antitrust Act
2. Federal antitrust laws apply to activities not addressed by state laws
3. Federal laws enacted specifically to regulate the business of insurance preempt any state laws applying to these same activities
• For McC-F to preempt antitrust acts:
1. Prior rate approval
2. Rate filing process
3. Role of rating organizations
4. Anti-rebating laws in states that allow them
Prohibits insurers from returning portions of premiums and producers from returning portions of commissions to those who buy insurance
SECT A: INSURANCE ACTS
GRAMM-LEACH-BLILEY ACT/FINANCIAL SERVICES MODERNIZATION ACT
State vs federal regulation of bank-insurer affiliations
• Addressed state v federal regulation of bank-insurer affiliations
o Each financial sector regulated separately
o States have primary responsibility for insurers
• Provisions
1. States prohibited from preventing bank affiliates from selling insurance on same terms as insurance producers
2. Banks must use an insurance affiliate of a financial holding company to sell insurance, not its own subsidiary
3. Banks must disclose privacy policies
4. States must facilitate insurance producer’s ability to operate in multiple states
SECT A: INSURANCE ACTS
DODD-FRANK WALL STREET REFORM & CONSUMER PROTECTION ACT
- Federal Reserve System (Fed) has limited regulatory authority over two categories of insurers, to prevent systemic risk
i. Systemically important financial institutions (SIFIs)
ii. Insurers holding companies with banks & thrifts - Formation of US Treasury’s Federal Insurance Office (FIO) to monitor insurance industry
• Ensures US insurers have international equivalence
SECT A: INSURANCE ACTS
REQUIREMENTS OF FED-REGULATED INSURERS (4)
- ADHERE TO CAPITAL STANDARDS
- MEET LIQUIDITY REQUIREMENTS
- UNDERGO STRESS TESTING
- DEVELOP LIVING WILLS/RESOLUTION PLANS IN CASE OF BANKRUPTCY
SECT A: INSURANCE ACTS
SIFI CONTROVERSIAL ISSUES (4)
- NEBULOUS DESIGNATION CRITERIA; NO RULES ON HOW TO AVOID
- BURDEN OF ADDITIONAL REGULATION
- INSURERS & BANKS HAVE DIFFERENT BUSINESS MODELS
- INSURERS MADE A MINIMAL IMPACT IN GREAT RECESSION
SECT A: INSURANCE ACTS
ACTUARIAL CONCERNS ABOUT DODD-FRANK WALL STREET REFORM & CONSUMER PROTECTION ACT (4)
- STANDARDIZATION MAY TURN INS PRODUCTS INTO A COMMODITY, REDUCING PROFIT MARGIN & COMPETITION
- INCREASE ON CAPITAL REQUIREMENTS
- SIGNIFICANT COMPLIANCE COSTS FOR INSURERS WITH BANKING AFFILIATES
- DUAL REGULATION (AT STATE & FEDERAL LEVEL)
I. FEDERAL REGULATION IS RESTRICTIVE & EXPENSIVE TO INSURERS
II. NEW ACCTG & SOLVCY STANDARDS => INCONSISTENT PLAYING FIELD IN INS MARKET
SECT A: INSURANCE ACTS
SIFI CONTROVERSIAL ISSUES (4)
- NEBULOUS DESIGNATION CRITERIA; NO RULES ON HOW TO AVOID
- BURDEN OF ADDITIONAL REGULATION
- INSURERS & BANKS HAVE DIFFERENT BUSINESS MODELS
- INSURERS MADE A MINIMAL IMPACT IN GREAT RECESSION
