Regulation and Legal Principles Flashcards
Why have insurance regulation?
To protect policy holders, to make insurance available and ensure reasonable rates.
What’s RBC?
Risk-Based-Capital
How can insureds be protected through regulation?
Insured’s position as creditor can strengthen by keeping insurer’s solvent and improves consumer knowledge.
What are some methods for regulating insurers?
Legislation (state and federal laws), courts, state insurance departments
What areas are regulated?
Financial regulation, rate regulation, sales practices and consumer information
What are the 4 fundamental legal principles?
1) Principle of Indemnity
2) Principle of Insurable Interest
3) Principle of Subrogation
4) Principle of Utmost Good Faith
What is the Principle of Indemnity
The insurer doesn’t pay more than the actual cost of the loss because the insured shouldn’t profit from the loss; purpose is to reduce moral hazard. Example: discounted computer. Exceptions: life insurance, replacement cost insurance, valued policy laws, valued policies.
What is the Principle of Insurable Interest? Must be met only at the inception of the policy
The insured must be in a position to lose financially if a covered loss occurs; purpose is to prevent gambling, reduce moral hazard, and to measure amount of loss in property insurance.
What is the Principle of Subrogation
The Insurer is entitled to recover from a negligent third party any loss payments made to the insured; purpose is to hold negligent person accountable, avoid collecting twice, to hold down payments
What is the Principle of Utmost Good Faith?
A higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts; is supported by representations, concealment, warranty
What is Aleatory?
Values exchanged are not equal
What is unilateral?
Only the insurer makes a legally enforceable promise.
What is conditional?
Policyholder must comply with all policy provisions to collect for a covered loss.
What is persona?
Property insurance policy cannot be validly assigned to another party without the insurer’s consent.
What is a contract of adhesion?
The insured must accept the entire contract with all of its terms and conditions.
