Study 5: The Regulatory Environment Flashcards
The Insurance industry must strike a good balance between complying with government legislation and what?
A) Best business practices
B) Consumer ratings
C) Good corporate governance
D) The Insurance Act
C) Good corporate governance
The insurance industry must comply with government legislation while practising good corporate governance.
What does the risk-based regulatory model consider regarding a company failure?
A) Effect it would have on insurance regulation
B) Effect it would have on the cost of insurance
C) Effect it would have in the investment community
D) Effect it would have on consumers and the economy.
D) Effect it would have on consumers and the economy
The risk-based model considers the effect that a company failure would have on consumers and the economy. Very large and very small insurance companies would each have different effects on the financial system and on policyholders - with correspondingly different political implications.
What does risk-based regulation and supervision aim to neutralize?
A) Insurance premium rate cycle
B) Rising costs of claims coverage
C) Rising costs of fraud claims
D) Integration of more technology in the insurance industry
A) Insurance premium rate cycle
Risk-based regulation and supervision also aims to neutralize the insurance premium rate cycle. Governments have gained instant political credibility by imposing price freezes on insurance rates, but only at the expense of long-term market stability.
Which organization is named by the regulators as the statistical agent for participating regulators?
A) OFSI
B) GISA
C) IBC
D) IIC
B) GISA
The General Insurance Statistical Agency (GISA) is a not-for-profit organization named by regulators as the statistical agent for participating regulators. GISA contracts with IBC to collect data from insurers and compile exhibits.
What factors are contributing to insurance issues becoming increasingly complex?
A) Globalization and technological change
B) Globalization and climate change
C) Climate change and technological change
D) Economic change and globalization
A) Globalization and technological change
Insurance issues are becoming increasingly complicated and increasingly cross-jurisdictional due to factors like globalization and technological change.
Which organization uses the minimum capital test to measure solvency?
A) Insurance Bureau of Canada
B) Financial Consumer Agency of Canada
C) Office of the Superintendent of Financial Institutions (OSFI)
D) Canadian Council of Insurance Regulators (CCIR)
C) Office of the Superintendent of Financial Institutions
OFSI uses the minimum capital test (MCT) to measure solvency
Which test requires that insurers have assets worth at least a certain multiple of the amount of their liabilities as well as a margin of additional tests? A) Accounting test B) Premium test C) CSA standards test D) Minimum capital test
D) Minimum capital test
The minimum capital test requires that insurers have assets worth at least a certain multiple of the amount of their liabilities as well as a margin of additional assets.
All businesses are subject to which federal privacy law?
A) The Privacy Act
B) Personal Information Protection and Electronic Documents Act
C) Personal Information ProtectionAct
D) Act Respecting the Protection of Personal Information in the Private Sector
B) Personal Information Protection and Electronic Documents Act.
The federal privacy law that all businesses are subjected to is the Personal Information Protection and Electronic Documents Act. (PIPEDA)
Rather than spending time focusing on projects that will produce more durable success for the corporation, what should management be doing?
A) Meeting immediate regulatory requirements
B) Training employees to respond to disasters
C) Responding to consumer concerns
D) Building community partnerships
A) Meeting immediate regulatory requirements
Certain regulations create arduous processes for insurers: Management must spend valuable time and resources meeting immediate regulatory requirements rather than focusing on projects that will produce more durable success for the corporation.
Which of the following has the Canadian Council of Insurance Regulators (CCIR) been involved with?
A) Working with consumer groups to market insurance
B) Researching new markets for insurance providers
C) Harmonizing and streamlining licensing approvals and financial and corporate sector filings
D) Working with the courts to explain legislation
C) Harmonizing and streamlining licensing approvals and financial and corporate sector filings
CCIR has been involved in harmonizing and streamlining approvals and financial and corporate sector filings.
Narrative: Outline key objectives of a risk-based regulatory model (5 marks)
Objectives of a risk-based regulatory model:
1) Timely and fair claims management
2) Informed and empowered consumers
3) Meaningful choice for insurance consumers
4) Market stability
5) Low system costs
Narrative: Identify the types of information that regulators monitor. (5 marks)
Information that regulators monitor (any five of the following)
1) Reliable statistics on the frequency and severity of claims
2) Trends in loss cost developments
3) Average length of time that a claim is open
4) Incidence and cost of fraudulent and other illegal activity
5) Changes in average private passenger premiums
6) The Consumer Price Index (CPI)
7) Premiums for specific demographic profiles
8) Insurance costs as a percentage of total costs of running an automobile and of disposable income
9) Reinsurance costs as a percentage of premium
10) Profit or loss from a residual market mechanism ( like the Facility Association), if applicable
11) Capital bases of insurers operating in the province and other financial diagnostics
Narrative: Outline FIVE responsibilities of provincial and territorial insurance regulators. (5 marks)
Responsibilities of provincial and territorial insurance regulators (any five of the following)
1) Monitoring each insurer’s compliance with provincial and territorial insurance legislation
2) Monitoring the solvency of provincially and territorial incorporated insurers
3) Licensing insurers to operate in its jurisdiction
4) Licensing and supervising adjusters, brokers, and agents
5) Approving classes of business
6) Controlling an insurer’s advertising
7) Reviewing insurance contract wordings
8) Approving policy forms
9) Enforcing underwriting eligibility criteria
10) Overseeing claims settlement practices
11) Overseeing the electronic marketing of insurance
12) Overseeing the ethical, operational, and trade practices of insurers
