Study 5 - The Regulatory Environment Flashcards
Describe a Risk-Based Regulatory Model
The focus of this model is to change the communication model between regulator and insurance company.
Governments clearly state their goals and key policy objectives.
Everyone understands the framework of regulation and how it is to be applied.
Insurance companies can align themselves to meet those goals and still compete with each other within the framework
- this model contemplates that regulators will work with insurance companies to have them ultimately solve their own problems
- A risk-based model pre-requisite is a healthy insurance market where consumer needs are met by products readily available and affordably priced.
What are the five (5) key objectives of a risk-based regulatory model?
- ) informed and empowered consumers
- ) Timely and fair claims management
- ) Meaningful choice for consumers
- ) Low system costs
- ) Market Stability
What are five (5) things that (auto insurance) regulators monitor?
- ) Statistics on frequency and severity of claims
- ) Average length of time that a claim is open
- ) Insurance costs as a percentage of total cost of running an automobile and disposable income
- ) The Consumer Price Index (CPI)
- ) Premiums for specific demographic profiles
- ) Fraud incidences and cost of fraudulent activity
- ) Profit or loss from residual market (like the FA)
What are the responsibilities of the provincial and territorial regulators?
- Licensing of agents, brokers and adjusters
- Market conduct audits and investigations and penalties
- Provincially incorporated Insurer solvency
- Overseeing wording and statutory conditions
- Oversees auto insurance rating
- Oversees marketing of insurance (electronic and advertising)
- Licensing insurers to operate in the jurisdiction
Name the Federal Regulators
- ) Canadian Council of Insurance Regulators (CCIR)
- ) Office of the Superintendent of Financial Institutions (OSFI)
- ) Financial Consumer Agency of Canada (FCAC)
What is the purpose of the Canadian Council of Insurance Regulators (CCIR)
- CCIR aims to HARMONIZE insurance regulations across Canada as much as possible.
- Helps regulators to share information and find common solutions
- improve efficiency and effectiveness of Canadian regulatory framework
- give advise to policy makers
- streamline licensing approvals
- streamline financial and corporate filings
What is the purpose of the Office of the Superintendent of Financial Institutions (OSFI)
- OSFIs aim is to protect consumers by ensuring that insurance companies REMAIN SOLVENT
What is solvency?
When a company is capable of honoring all its debts even it it were closed down immediately.
What is the Minimum Capital Test (MCT)?
The MCT is a harmonized asset test used to measure solvency.
The MCT is applied to all Canadian insurers operating in Canada.
The MCT also has a test for the branches of foreign P&C insurers.
The MCT requires:
- That an insurers assets’ exceed its liabilities by a specified ratio.
What is Capacity?
Capacity is the function of both capital available and extent of exposure that insurers are prepared to accept.
What must capacity be sufficient to cover?
Capacity must be sufficient to cover
- expenses,
- commissions,
- premium taxes, and
- claims that are incurred prior to policy premiums becoming earned.
What can an Insurer do if it becomes Undercapitalized?
- reduce premium written
- cede more to reinsurers
- take a different strategic decision on the lines of business they write
reduce the capacity they provide in certain lines of business
What is the Financial Consumer Agency of Canada (FCAC)?
FCAC is a federal independent body established to oversee consumer issues and expand consumer education in the financial sector
What activities does FCAC perform?
- Promotes consumer awareness about the obligations of FI’s
- Monitors FI’s publicly available codes’ of conduct
- Supervises FI’s to ensure compliance with consumer provisions applicable to them
- Promotes adoption by FI’s of policies and procedures to implement consumer provisions.
