Week 7 Flashcards
What are the main goals of insurance regulation?
To provide insurance companies with solvency and equity
But also regulation does:
Provide structure in insurance markets, provides financial stability and consumer protection
Whats the difference between efficient and inefficient markets?
Efficient markets:
Self correcting markets, prices reflect the information available and fair competition, lower fraud and consumers are not exploited.
Inefficient markets:
Not self correcting markets, prices fluctuate greatly and competition may not be fair, higher amounts of fraud and consumers may be exploited and so government and regulators may have to intervene.
What might intervene if a market become inefficient?
PIT (Public interest theory)
What factors might PIT intervene for?
Public heath insurance, avoid businesses competing to destroy each other completely and causing unfair solvency and creating equity, having fair spread of resources.
What does PIT assume? (3)
That the gov knows when to intervene, they know how to act and what on such as possibly loosing tax policies or creating more regulation and knowing how to balance the welfare for everyone.
You get PIT but what is the other theory?
RCT (Regulatory capture theory)
What does RCT want to do? (3)
It wants to protect the welfare of people, the markets and ensure fairness through the use of legislation
What is materialistic and non-materialistic and what does it belong to, when I say that what am I really talking about?
Your talking about RCT, Materialistic also known as financial capture is when regulators act on behalf of self interest or on behalf of political corruption or via a bribe of money. Can quickly lead to an inefficient market
Non-materialistic also known as cognitive and cultural capture is when regulators like to think like the markets, think about fairness and the overall of everyone involved in a market ensuing it stays to an efficient market
Materialistic and non-materialistic markets can also be known as what else?
Financial capture
Cognitive or cultural capture
What could the impact of a materialistic and non-materialistic capture be on a market?
Materialistic could turn into an inefficient market
a non-materialistic is likely to stay as an efficient market
What is IPT?
Insurance premium tax, its a tax policiy which is put on general premiums on insurance companies
What is considered standard and high rate in IPT?
Standard would be 12% whereas high would be 20%
Who is responsible for IPT collection?
Insurers
What are arguments for insurance regulation?
Maintain insruance solvency
protects consumers
provides markets with financial stability
stop fraud on both ends
stops possible corruption if a non-materialistic regulatory capture theory system is in place
What are some reason for being against regulation in insurance?
-Can stop growth
-can stop innovation
-can increase the cost of premiums
-insurance may hold excessive amounts of capital
-stops higher risk policies from being put in place decreasing the balance of low to high risk
-insurance may be more difficult for consumers to get due to the requirements in their policies
-might slow down underwriting speeds
