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Flashcards in Class 3 Deck (17)
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Reasons for Insurance Regulation

♠ Maintaining Insurer Solvency (Possible financial insecurity if insurers fail)
♠ Inadequate Consumer Knowledge
♠ Ensuring Reasonable Rates
♠ Making Insurance Available


Inadequate Consumer Knowledge (Reasons for Insurance Regulation)

♠ Complex product
♠ Difficult to compare and determine monetary value
♠ Protection needed against unethical agents


Historical Development of Insurance Regulation

♠ Early efforts
♠ Paul v. Virginia
♠ South-Eastern Underwriters Association Case
♠ State versus Federal Regulation
♠ Public Law 15 – McCarran-Ferguson Act


Early Efforts (Historical Development of Insurance Regulation)

♠ State-chartered companies - an association formed by investors or shareholders for the purpose of trade, exploration, and colonization.
♠ State insurance commissions


Paul v. Virginia (Historical Development of Insurance Regulation)

♠ Ruled that insurance was not commerce
♠ Defeated a challenge to state regulation


South-Eastern Underwriters Association Case -
(Historical Development of Insurance Regulation)

♠ Reversed the Paul decision – court ruled that insurance was interstate commerce when conducted across state lines and was subject to federal regulation
♠ Cast doubt on the legality of private rating bureaus and powers of the state to regulate and tax the insurance industry


Public Law 15 – McCarran-Ferguson Act
- (Historical Development of Insurance Regulation)

♠ Reaffirmed states’ responsibility to regulate and tax the insurance industry
♠ Conditionally exempted the insurance industry from federal antitrust laws


Methods for Regulating Insurers

♠ Legislation
♠ Courts
♠ State Insurance Dept.


Legislation (Methods for Regulating Insurers)

♠ State laws:
♠ Federal laws;


Courts (Methods for Regulating Insurers)

♠ Constitutionally of state insurance laws
♠ Interpretation of policy clauses and provisions
♠ Legality of administrative actions by state departments


Areas That Are Regulated

♠ Formation and Licensing of Insurers
♠ Financial Regulation
♠ Rate Regulation
♠ Policy Forms
♠ Sales Practices and Consumer Protection


Shortcomings of State Regulation (State versus Federal Regulation)

An increasing drag on efficiency and competitiveness.
- Repeal of the McCarran-Ferguson Act


McCarran-Ferguson Act (MFA) in 1945

Delegated the regulation of insurance to the states.


Advantages of Federal Regulation (State versus Federal Regulation)

♠ Coordination among the states
♠ Uniform approach saves money on bureaucracy


Advantages of State Regulation State versus Federal Regulation)

State regulation does protect the industry from bad regulation in the sense that if a state were to make a serious error regarding regulation, the negative effects of the error will likely be most felt in the state with the “bad” regulation.


Current Issues in Insurance Regulation

♠ Convergence of Financial Services
♠ Increase in Mergers and Acquisitions
♠ Growth of the Internet and E-Commerce
♠ Insolvency of Insurers
♠ Quality of Insurance Regulation
♠ Deregulation of Commercial Lines
♠ Texas Unfair Claims Settlement Act
♠ Texas Prompt Payment of Claims Requirements


Texas Unfair Claims Settlement Act

Insurance companies violate the Texas Unfair Claims Practices Act when they: Knowingly misrepresent material facts or policy provisions related to coverage. Fail to attempt in good faith to effectuate a prompt, fair and equitable settlement of a claim with respect to which their liability has become reasonably clear.