Porter Ch. 8: Rate Regulation Flashcards
Primary purpose of rate regulation
Financial stability of the insurer
Three ways rating is unique
Insurers set rates before actual costs are known
Regulatory environment different by state
Information sharing would raise antitrust issues in other industries
Regulation of Ocean Marine
Very little
Highly individualized risks
No statistical information
Knowledgeable customers and sellers
Regulation of Inland Marine
Generally only informational filings
Diverse coverages
Regulation of Surety
Little regulatory review, rate manuals filed
Subjective risk evaluation
Less credible loss experience
Regulation of Title
Rate manuals filed, little regulatory review
Driven more by business expense
Regulation of CGL
General regulation
Sophisticated buyers
Regulation of WC
Close regulation, prior approval
Legally required
Costly, widespread business
Political theory of regulation
Regulatory attention can be greatest for issues that attract substantial voter interest and are easy for policymakers to understand
First Statement of Ratemaking
A rate is an estimate of expected value of future costs
Second Statement of Ratemaking
A rate provides for all costs associated with transfer of risk
Third Statement of Ratemaking
A rate provides for costs associated with individual risk transfer
Fourth Statement of Ratemaking
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 individual risk transfer
Statistical agents
Collect and report loss experience
Rating bureaus
Prepare rate filings and submit to regulators on behalf of members
