Porter 4 Flashcards
Briefly describe the program that NAIC put in place for accreditation of state insurance departments
Requires state to implement a number of legislative and administrative measures to bring about an effective solvency regulation program. Establishes a framework for state solvency regulation in the following areas:
- law and regulations
- regulatory practices and procedures
- organizational and personnel practices
Discuss how the accreditation program has been successful
by leading states in adopting similar and uniform solvency laws and improving the consistency in solvency regulation. All 50 states and DC have been accredited.
Criticism: NAIC has been accused of usurping legislative power
Describe 3 techniques that state insurance departments and/or the NAIC use in regulating solvency of insurance companies
- Financial examinations: state regulators monitor insurer’s financial statements and examine its records to assess the strength of the company
- NAIC RBC ratio: the risk-based capital analysis establishes a minimum level of required capital and gives the state legal authority to take over an insurance company if necessary
- IRIS ratios: the tests help determine as early as possible those insurers that might be in financial trouble and prioritized the examinations schedule accordingly
Explain how the NAIC affects insurance regulation through promulgation of model laws
by drafting model laws and recommending that each of the several states pass them, the NAIC strives to enhance the quality and uniformity of insurance regulation across the several states, this has benefit to large, national carriers in that they can spend less on getting rates approved since there are more consistent filing packages that they must prepare
Explain how the NAIC affects insurance regulation through research activities
The NAIC collects data from across the US, providing a large and credible database of information. NAIC does research to save time and money for state insurance departments, such as:
- provide info to regulators on current issues
- keep track of insurers trends on a national level
- provides info on trends in insolvencies
Describe 3 reasons why some NAIC model laws are not universally adopted by states
- state may already have laws addressing the issue
- state legislators may have other issues in front of them they feel are more important
- state legislators may feel NAIC is usurping their powers and changes to law or their own laws better serve their constituents than the model law
Briefly describe 2 constraints that DOIs and state governments face in dealing with the NAIC’s regulation standards
- difficult to keep current with continuously changing NAIC standards which require regular attention from DOI’s and legislatures
- DOI/ state government may not have the resources to meet and keep up with the standards
Describe 4 functions of the NAIC and give an example of a function or service performed by the NAIC to support each objective
- protect public interest: prepares special reports on insurance issues such as redlining and auto competition
- promote competitive markets: model laws, regulations and guidelines promote uniformity among states and reduced expenses for insurers to comply
- facilitate the fair and equitable treatment of insurance consumers: keeps Complaints Database System which contains info about complains made against insurers on a state or national basis
- promote the reliability, solvency, and financial solidity of insurance institutions: maintain computerized databases to help regulators track insurers’ financial solvency
- support and improve state regulation of insurance: accreditation program to promote consistent, effective regulation across all states
Discuss reasons a state legislator might use to support the adoption of a proposed NAIC model law
- adopting the model law would streamline state processes. Research and drafting has already been done and would not have to be re-created at the state level
- it is to the mutual benefit of states when examining multi-state insurers to have consistent laws
- compliance with various state standards/ regulations for multi-state insurers is easier and less expensive with uniform standards
- insurers can benefit from legal uniformity among the states on a variety of matters, such as agency and claim adjuster licensing standards, and pricing, coverage, and statistical filing requirements, because of economies of scale
Discuss reasons a state legislator might use to oppose the adoption of a proposed NAIC model law
- state may view as inappropriate or unnecessary due to coverage in other state laws
- legislators might decide to modify a model law to meet their states’ particular needs or better match other laws
- legislature considers many matters and may see NAIC model law as just another agenda item
Describe the sources of state insurance law
- Legislative Branch: state legislature enacts statutes resulting in a body of law called statutory law
- Executive Branch: insurance department enforces state insurance code and adopts regulations resulting in a body of law called administrative law, attorney general provides legal advice and opinions
- Judicial Branch: state court system adjudicates disputes by applying and interpreting statutory and administrative law, resulting in a body of lay called case law
A state’s regulatory system enables the DOI to oversee insurers’ operations within the state. Briefly describe the four features that a typical state insurance regulatory system contains
- Licensing requirements: insurers obtain a license before conducting insurance business and producers are licensed to solicit the sale of insurance
- Reporting and filing requirements: such as A.S. and Q.S. and policy forms, rules and rates
- Periodic examinations: examine the financial condition and financial records to ensure they are financial sound and complying the regulatory requirements
- Power to impose sanctions: when insurers fail to comply with regulatory requirements
The insurance environment is affected by the passage by a state legislature of laws other than for insurance. Briefly describe 6 examples
- Banking: Gramm-Leach_Bliley Act
- Contracts
- Premiums
- Fraud
- Investments
- Lobbying
The Support and Services Office of the NAIC includes a research division. State 6 main activities that are performed by the research division
- giving information to state insurance departments
- helping staffs of insurance departments with technical and regulatory questions
- giving information to federal and state government agencies and others
- helping to develop the NAIC financial and statistical databases
- providing pertinent statistical material and research studies
- giving other NAIC departments support through research
Describe 4 aspects of statistical work done by the NAIC research division
- quality monitoring
- routine reporting
- special reporting
- model statistical reporting plans for major lines
