Section G Regulation of Insurance: Vaughan: Economic Crisis

Question 1

List three problems with regulation

Answer 1

1️⃣ Regulatory fallibility

2️⃣ Regulatory forbearance

3️⃣ Regulatory capture

Question 2

Describe Regulatory Forbearance

Answer 2

Failure to take prompt and stringent action in the face of a potentially troubled firm

Question 3

Two causes of Regulatory Forbearance:

Answer 3

1️⃣ Chance the insurer will survive

2️⃣ Shutting down an insurer is difficult

Question 4

Four reasons that it is difficult to shut down a troubled insurer

Answer 4

🛒 Insurer may be a major player in market

🇺🇸 Insurer possibly politically connected

🚓 Adverse impacts on regulator’s reputation

🗣 May result in a dispute with company of regulator orders it to take corrective action

Question 5

Describe Regulatory Capture

Answer 5

Tendency of regulators to side with an interest group

Question 6

Three types of checks and balances in US regulation

Answer 6

👯 Duplication

🍻 Peer Pressure

👁 Diversity of Perspective

Question 7

List two responsibilities of NAIC’s Financial Analysis Division (FAD)

Answer 7

1️⃣ Performs ongoing financial analysis of all nationally significant insurers

2️⃣ Identifies trends, benchmarks, identifies troubled companies

Question 8

Briefly describe the purpose of NAIC’s Financial Analysis Working Group (FAWG)

Answer 8

Collaborate to work on problems of potentially troubled insurers

Question 9

List two elements of the structure of the US regulatory system that allows other states to question a state, encourage improvement, and possibly pressure a domestic regulator to act

Answer 9

1️⃣ Insurers of the regulator’s state will require licenses in order to be able to do business in other states

2️⃣ Other regulators can examine the insurers and take action

Question 10

List five requirements for system to benefit most from peer review process

Answer 10

1️⃣Culture of free flowing info

🧗🏼‍♀️Willingness to challenge \& be challenged

📨Accreditation system ensures that supervisors share information

🔎FAD helps ensure that potentially troubled insurers are identified

📥FAWG serves as a forum to challenge the domestic regulators

Question 11

Explain why there is a need to balance regulatory costs vs benefits

Answer 11

💸Overregulation imposes unnecessary costs

🚫Insufficient regulation causes unnecessary harm to consumers and taxpayers