Section G Reg. of Ins.: Porter: Ins. Reg. 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

• Insurer financial stability which results in consumer protection
• 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 the greatest for issues that attract substantial voter interest and are easy for policy makers to understand

Question 4

Provide four 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
• Knowledge buyers and sellers

Question 7

Describe the degree of rate regulation and rationale for surety

Answer 7

• Rate manuals filed, 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 files, little regulatory review
• No stat plan or ratemaking data
• Few rating or risk evaluation factors
• Underwriting and exposure identification 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
• Uniformed consumers
• Highly uniform stat plan with credible rate data
• Complex rates and classification 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 classification system

Question 12

Difference between Statistical Agent and Rating Bureau

Answer 12

• Statistical Agents/ Advisory Organizations: collect and report loss experience
• Rating Bureaus: prepare rate filings and submit to regulators on behalf of members