Section 2 - Rate Regulation (Chap 28)

Question 1

3 objectives of rate regulation

Answer 1

1 Rates are adequate
2 Not excessive
3 Fairly discriminatory

Question 2

Types and sub-types of rate regulation: ACM

Answer 2

ACTIVE (2):
- government mandated (Alberta GRID, BC)
- prior approval (Ontario major filings)

MODERATE (3):
- file & use (PEI)
- use & file (Quebec)
- flex rating (not used in Canada)

COMPETITIVE (2):
- file only (USA only ?)
- open competition (Nunavut, Yukon)

Question 3

Gouvernment mandated Rates - Definition

Answer 3

Rates decided by Gouvernment (Crown or rating board like Alberta ) The gouvernment rates can be applied to private insurers

Question 4

Prior Approval (fillings) - Definition

Answer 4

Insurers are able to determine their own rates but must justify these rates to the regulator, who must approve them based on projections of claims and expenses

Question 5

File and Use (less restrictive) - Definition

Answer 5

Insurers must file rates and supporting documentation with the regulator within 30-90 days prior to use. Less documentation than Prior approval fillings.

Question 6

Use and file - Definition

Answer 6

Insurers can use their rates they choose . They provided the rates to the regulator within 30-60 days period after implementation. Regulator can still disapprove the rates even if it’s implemented.

Question 7

File only - Definition

Answer 7

Most competitive form of rate regulation. In some jurisdictions, Insurers are required to submit rates and statistical support, but Regulators will not review or disapprove the rates. (very rare and mostly in USA)

Question 8

Open competition - Definition

Answer 8

NO FILLING at all

Question 9

Rate adequacy - Definition

Answer 9

Rates are sufficient to provide for all future claims and expenses associated with the insurance protection that is offered.

Question 10

List 3 reasons why Inadequate pricing can arise

Answer 10

1. Lack human resources with with the skills necessary to conduct the complex actuarial analyses required to support pricing decisions.
2. Company does not choose the actuarial pricing indications due to market conditions, regulatory constraints, economic outlook, position in the underwriting position cycle
3. Regulatory actions that results to suppress the required rate change

Question 11

What is fair discrimination

Answer 11

Process of evaluating insurable risks and determining premiums on the basis of likelihood of loss.
If your exposure to have a loss is higher than someone else, you should pay higher premiums