KPMG Regulatory Oversight

Question 1

What are Objectives of PC Rate Regulation according to American Institute for Chartered PC UW

Answer 1

• Maintain insurer solvency
• Protect insurance consumers
• Ensure availability of coverage
• Regulated insurance rates

Question 2

What are Objectives of PC Rate Regulation according to McKinsey and Company

Answer 2

• Safety and soundness: Minimize risk of industry failure
• Fair treatment of customers: Uniformly and fairly treated
• Efficiency: Leading to lower cost for industry and customers
• International Competitiveness: Effective international agreements

Question 3

What are Objectives of PC Rate Regulation according to Tennyson

Answer 3

Rates are adequate, not excessive and not unfairly discriminatory
• Rate sufficient to provide for all future claims and expenses
• Should not be allowed to earn excessive profits, so available and affordable

Question 4

Provide Types of rate regulation sorted by, active regulation, moderate regulation and competitive rating

Answer 4

Active rate regulation
• Gov-mandated rates • Prior approval

Moderate rate regulation
• File and Use • Use and File • Flex rating

Competitive rating
• File only • Open competition

Question 5

From West to East Cost, provide the rate regulation system used in each province and territories

Answer 5

• Terr: Open
• BC: G-M rates, Open (opt cov)
• AB: G-M rates, FU (other than PPV)
• SK: G-M rates, Open (opt cov)
• MA: G-M rates, Open (opt cov)
• ON: PA, FU (other than PPV)
• QC: G-M rates, UF (other than BI)
• NB: NBIB says PA, Ins. Act says FU
• NS: PA
• NF: PA, FU
• PEI: FU

Question 6

Describe the form of rate regulation: Government-Mandated

Answer 6

• Rates set by Crown corporation or rating board

* Could be use exclusively by gov insurers or private insurers

Question 7

Describe the form of rate regulation: Prior Approval

Answer 7

• Insurer must file proposed rates and supporting doc before using them
• Must supply actuarial justification
• Rates are deemed approved if not explicitly disapproved (usually 30 to 90 days)

Question 8

Describe the form of rate regulation: File and Use

Answer 8

• More passive than PA
• Insurer must file rates and supporting doc within specific period of time before using them
• Typical period review of 30-90 days
• Doc often less significant than required under PA
• Advocates of FU say it eliminates some of the delay of PA (generally rates are implemented sooner)

Question 9

Describe the form of rate regulation: Use and File

Answer 9

• Rates must be filed within a certain time after being put into use
• Regulator could disapprove, potentially retroactively

Question 10

Describe the form of rate regulation: Flex Rating

Answer 10

• Goal : smoother insurance pricing
• Rates changes that fall within a specified range (±5 to 10%) do not require PA, but may be subject to FU, UF or file only
• Rates changes beyond this still require PA
• Permits quick adjustments but limits swing

Question 11

Describe the form of rate regulation: File Only

Answer 11

• Insurer must file rates and justifications but not subject to regulatory approval

Question 12

Describe the form of rate regulation: Open Competition

Answer 12

• Insurer use rates and do not have to file
• Market driven
• Regulators still retain the right to intervene

Question 13

Provide ways in which UF could be beneficial over PA

Answer 13

• Decreases volatility in insurance premiums
• Less reg costs, thereby decreasing insurance premiums
• Lack of reg lag reduces the magnitude and freq of price swings, resulting in less uncertainty
• Have smaller residual markets than PA
• Lead to larger #insurers, provide more choice to buyer
• More refined classification or rating algo or innovation
• Reg spent more time on solvency and market conduct