Lecture Flashcards
1
Q
What does insurance add to society?
A
- companies to can expand, add to society, etc. if they know their covered
- spreading losses so you don’t have a major loss in one area
- avoid having an entire area economically ruined from catastrophe
- home owners insurance (for a co. they take bonds)
2
Q
how do we decide coupon rate?
A
their ability to pay it back; more risk, higher rate
3
Q
what makes a risk insurable
A
- economically feasible premium
- accidental and unintentional
- calculable frequency and severity
4
Q
why do co.s/ people buy insurance?
A
- helps economic profit in the long-run
- so they look prepared when something happens, don’t want to seem unprepared
- contractual obligations with other co.s
- regulatory requirements or can’t partake in certain events
- decrease variability by requiring insurance on their side
5
Q
goals of insurance regulation
A
- protect insurance consumers
- maintain insurer solvency
- preventing destructive competitive
6
Q
why not leave the market completely open to competition?
A
natural disasters- huge correlated effect in one region that wipes out its economy
7
Q
stress testing
A
- run scenarios
- can you handle less likely but plausible events?
8
Q
destructive competition
A
- can force prices of premiums down to a point where its underpriced (more risk of insolvency)
- can’t survive a crash; only big co.s survive
- eventually leads to monopoly or oligopoly (high barriers to entry and high industry exits)
9
Q
who writes insurance laws?
A
the state legislature (the commissioner just enforces them)
10
Q
NAIC
A
- a collection of all the insurance commissioners in all the states
- gives some direction or suggestions that states look to when writing insurance laws
- helps create some consistency btw states
11
Q
insurer accreditation
A
- you need a license (helps protect consumers)
- minimum capital requirements (solvency)
- dif. based on domestic v. foreign v. alien
12
Q
why are there different categories of accreditation?
A
- where the money comes from (state should get some tax $)
- you want to look out for your domestic insurers
- foreign/alien have higher thresholds b/c you’re protecting your states residents
13
Q
surplus lines
A
none admitted insurers
- deal with higher variability consumers
- not readily available in current insurance mkt in the state of admitted insurers
- you have to apply for this too
- generally has less regulation b/c it makes co.s want to do this which makes coverage available for high risk consumers
14
Q
must insurers still follow federal employment law?
A
YESSS
15
Q
solvency core principles
A
- total written premiums
- reserves
- net income
