Vaughan Economic Flashcards

1
Q

Explain why historically the major criticism of
insurance regulation has been the cost of dealing with
multiple states:

A
  • Inefficient

- Single regulator would reduce cost, increase uniformity & provide a national voice

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2
Q

List 3 problems with regulation:

A
  1. regulatory fallibility
  2. regulatory forbearance
  3. regulatory capture
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3
Q

Describe Regulatory Forbearance

A

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

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4
Q

2 causes of Regulatory Forbearance:

A
  1. Chance the insurer will survive

2. Shutting down an insurer is dicult

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5
Q

4 reasons that it is difficult to shut down a troubled

insurer:

A
  1. Insurer may be major player in market
  2. Insurer possibly politically connected
  3. Adverse impacts on regulator’s reputation
  4. May result in a dispute with company if regulator orders it to take corrective action
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6
Q

Describe Regulatory Capture

A

Tendency of regulators to side with an interest group

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7
Q

3 types of Checks and balances in US regulation:

A
  1. Duplication
  2. Peer Pressure
  3. Diversity of Perspective
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8
Q

List 2 responsibilities of NAIC’s Financial Analysis

Division (FAD):

A
  1. Performs ongoing nancial analysis of all nationally
    signicant insurers
  2. Identies trends, benchmarks, identies troubled companies
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9
Q

Briefly describe the purpose of NAIC’s Financial

Analysis Working Group (FAWG):

A

Collaborate to work on problems of potentially troubled

insurers

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10
Q

List 2 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:

A
  1. Insurers of the regulator’s state will require licenses in order to be able to do business in other states
  2. Other regulators can examine the insurers and take action
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11
Q

List 5 Requirements for system to benefit most from

peer review process:

A
  1. Culture of free flowing info
  2. Willingness to challenge & be challenged
  3. Accreditation system ensures that supervisors sharing
    information
  4. FAD helps ensure that potentially troubled insurers are
    identied
  5. FAWG serves as a forum to challenge the domestic regulators
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12
Q

Explain why there is a need to balance regulatory costs

vs benefits

A
  • Overregulation imposes unnecessary costs

- Insucient regulation causes unnecessary harm to consumers & taxpayers

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13
Q

List 4 elements of building an effective system of
regulation (that emphasizes coordination &
cooperation):

A
  1. Regulators must have condence in each other
  2. Free sharing of information among supervisors
  3. Ability for other countries to take action if they are
    dissatisfied with actions of another supervisor
  4. Must be credible mechanism to resolve situation where assets are insufficient to fund all of the claims
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14
Q

5 principles of nationwide regulation proposed by NAIC

to help achieve uniformity & reciprocity

A
  1. There need to be uniform standards where appropriate, although local standards may apply where necessary
  2. States should have the responsibility for setting/ enforcing standards
  3. State regulators should have equal standing regarding the regulation of holding company structures
  4. Structure should provide mechanisms for collaboration & interaction with international & financial services regulators on matters that impact US insurance
  5. The system shouldn’t reduce state’s authority to impose taxes & fees
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