porter 8 rates

Question 1

LOB w/ high regulatory scrutiny vs LOB w/ low regulatory scrutiny

Answer 1

LOW: WC, HO, PP auto

HIGH: everything else

Question 2

Reasons for high regulatory scrutiny vs low regulatory scrutiny (6)

Answer 2

credible data vs thin data (subjective or rates not based on loss experience)

impacts lots of ppl vs impacts few

easy for policymakers to understand_vs_ hard for policymakers to understand

compulsory vs not required

complex risk classification system vs individualized risks

unsophisticated buyers vs sophisticated buyers

Question 3

Political theory of regulation – 2 issues attracting highest regulatory scrutiny

Answer 3

1. policymakers understand it
2. high voter interest (affects many)

Question 4

Regulators ensure rates are not a/b/c

Answer 4

1. not excessive
2. not inadequate
3. not unfairly discriminatory

Question 5

Purpose of rate regulation

Answer 5

1. promote solvency
2. promote competition (→ lower prices)
3. protect consumers

Question 6

Rating bureaus

Answer 6

prepare part or entire rate fling with actuarial analysis

submits rate filings to DOI for its members

Question 7

insurance ratemaking is unique for 3 reasons

Answer 7

1. information-sharing and joint-product development mechanims would be antitrust elsewhere
2. rates set before costs are known
3. regulation varies in strictness by state

Question 8

Statistical agents

what do they do?

why they dont violate antiturst laws?

why legal?

Answer 8

advisory organization collects/reports industry loss ratios from lots of companies (ISO, NCCI)

Not anti-trust: McCarran-Ferguson exempts insurers from violating Sherman Act

legal so: adequate pricing to avoid insolvency + new insurers can enter market)