Porter Ch 8

Question 1

Initial Primary purpose of Rate regulation:

Answer 1

Financial stability of the insurer

Question 2

Briefly describe two purposes of rate regulation

Answer 2

1. Insurer financial stability which results in consumer
   protection
2. Pricing insurance so that it is fair, equitable, and affordable

Question 3

Briefly explain the political theory of regulation

Answer 3

Regulatory attention can be greatest for issues that attract
substantial voter interest and are easy for policymakers to
understand

Question 4

Provide 4 Statement of Principles of P&C Ratemaking:

Answer 4

1. A rate is an estimate of the expected value of future costs
2. A rate provides for all costs associated with the transfer of
   risk
3. A Rate provides for the costs associated with an individual
   risk transfer
4. A rate is reasonable and not excessive, inadequate, or
   unfairly discriminatory if it is an actuarially sound estimate
   of the expected value of all future costs associated with an
   individual risk transfer

Question 5

Describe three ways in which the insurance product is

unique

Answer 5

-Insurers set rates before the actual costs are known
-Regulatory environment different by state
-Insurance industry has many information-sharing and joint
product-development mechanisms

Question 6

Describe the degree of rate regulation and rationale for

ocean marine insurance

Answer 6

• Very little regulation
• Highly individualized risks
• No statistical info to justify rates
• Knowledgeable buyers and sellers

Question 7

Describe the degree of rate regulation and rationale for

surety

Answer 7

• Rate manuals led, little regulatory review
• Less detailed stat plan and ratemaking data
• Fewer statistically based rating factors
• Subjective risk evaluation
• Less credible loss experience

Question 8

Describe the degree of rate regulation and rationale for

title insurance

Answer 8

-Rate manuals led, little regulatory review
-No stat plan or ratemaking data
-Few rating or risk evaluation factors
-Underwriting and exposure identication key to controlling
losses
-Driven more by business expense than by insured losses

Question 9

Describe the degree of rate regulation and rationale for

commercial general liability:

Answer 9

• General regulation, except during tight markets

- Sophisticated buyers

Question 10

Describe the degree of rate regulation and rationale for

private passenger auto

Answer 10

-Often regulatory review of overall rates and details of rating plan
-Legally required or socially desirable for consumers to
purchase
-Uninformed consumers
-Highly uniform stat plan with credible rate data
-Complex rates and classication system

Question 11

Describe the degree of rate regulation and rationale for

workers compensation

Answer 11

=Close regulation, prior approval of rates and classification system

• Legally required of most employers
• Costly, widespread business
• Complex rating and classication system