Porter Ch. 2: Development of Insurance Regulation

Question 1

First American property insurer

Answer 1

Philadelphia Contributorship for the Insurance of Houses from Loss by Fire (1752)

Question 2

First state to charter insurers

Answer 2

Pennsylvania (1972)

Question 3

Insurers, prior to Revolution

Answer 3

Had to obtain charters under British Crown

Question 4

Insurers, post-Revolution

Answer 4

States passed laws prohibiting foreign insurers

Question 5

First DOI

Answer 5

New York (1859); first to require insurers to maintain UEPR

Question 6

Paul v. Virginia

Answer 6

States could continue to regulate own insurance market without violating constitution (not interstate commerce)

Question 7

National Insurance Convention

Answer 7

Created in 1871: developed constitution for regulators, designed uniform accounting statement, adopted taxation guidelines, first model law

Question 8

Multiline insurers, early 1900s

Answer 8

DOIs did not allow them; NY amended laws and allowed package policies, but still under separate insurers

Question 9

Multiline insurers, 1930s and 40s

Answer 9

Need is there; allowed in 1945; companies created subsidiaries to write multi-lines

Question 10

Insurance compacts

Answer 10

Formed to control rates:
PRO: Deter open/free competition
CON: Prevents insolvencies

Question 11

Sherman Antitrust Act

Answer 11

1890; did not directly apply to insurers, but gave states motivation to pass antitrust laws against controlling rates

Question 12

SEUA inception

Answer 12

Formed after states began to repeal antitrust laws (1940s); about 300 insurers in southeast

Question 13

SEUA charges

Answer 13

Controlling 90% of fire/allied lines; fixing rates; boycott/coercion/intimidation; threatening consumers if didn’t purchase insurance

Question 14

SEUA hearing

Answer 14

Initially dismissed (Paul); Supreme Court noted each of activities subject to prosecution under Sherman if not insurance companies

Question 15

Two key questions in SEUA case

Answer 15

1. Did Congress intend Sherman to prohibit insurer’s conduct of monopolizing business?
2. Do insurance transactions across state lines constitute “commerce among several states” subject to Congressional regulation?

Question 16

SEUA case conclusions

Answer 16

Insurance not distinct in states; not a single business conducting business across state line exempt from federal regulation; intangible products subject to federal regulation

Question 17

SEUA result

Answer 17

Federal regulation now applied to insurance

Question 18

Clayton Act

Answer 18

1914 - identified and made illegal practices that lessened competition (i.e. tying, price-discrimination)

Question 19

Robinson-Patman Act

Answer 19

Amendment of Clayton Act, required price differences to be justified by reduced operating costs

Question 20

Tying

Answer 20

Requiring purchase of one product to purchase another

Question 21

Subcommittee on Federal Legislation

Answer 21

Sherman and Clayton amended to allow cooperative arrangements to establish adequate rates; Robinson-Patman amended to exclude insurance

Question 22

McCarran-Ferguson Act

Answer 22

1945: Returned regulation of insurance back to states;

Question 23

NAIC model rate regulation laws: purposes

Answer 23

Ensure rates were not excessive…

Allow cooperation in setting rates if not hindering competition

Question 24

NAIC model rate regulation laws: actions

Answer 24

Required prior approval
Explained how to file
Described role of rating organizations
Recommended anti-rebating laws

Question 25

NAIC model rate regulation laws: issues

Answer 25

Many states did not want prior approval laws and some wanted rebating

Question 26

Act Relating to Unfair Methods of Competition

Answer 26

1947; certain activities unfair, deceptive

Question 27

Guaranty Association Model Act

Answer 27

1969 - all states have guaranty funds (when insurers become insolvent)

Question 28

Early Warning Tests program

Answer 28

1971 - essentially IRIS (1977)

Question 29

NAIC accreditation program

Answer 29

1989 - creates similar financial solvency regulation standards in all states

Question 30

National Flood Insurance Act

Answer 30

1968 - addressing affordability of flood insurance

Question 31

TRIA

Answer 31

2002 - transparent system to cover terrorist acts

Question 32

Risk Retention Act

Answer 32

1981 - address affordability of commercial insurance

Question 33

Surplus Lines

Answer 33

Insurance coverages obtained from nonadmitted insurers when protection not available from admitted insurers

Question 34

Surplus Line laws

Answer 34

Permit only specially licensed producers; licensee must make proper placement; before placement can occur, risk must be declined by admitted market

Question 35

Surplus line regulation

Answer 35

Rates and forms not regulated (flexibility to meet needs of insured); lack of guaranty fund protection

Question 36

Gramm-Leach-Billey Act

Answer 36

1999 - addressed issue of state vs. federal regulation with regards to affiliations between banks and insurers; confirmed each segment would be regulated seperately

Question 37

GLB prohibitions

Answer 37

Bank-related firms must sell insurance on same basis as insurance producers; prohibits national banks from forming subsidiaries to UW insurance

Question 38

Producer Licensing Model Act

Answer 38

Result of GLB: requires states to establish system of reciprocal producer licensing or uniform licensing standards

Question 39

Exceptions to McCarran-Ferguson Act

Answer 39

State’s loss of control, federal law supersedes state law, anti-trust activities still not allowed