Economic Crisis Lessons

Question 1

potential advantages of federal regulation (3)

Answer 1

• national uniformity
• avoid costs of duplicative regulation
• single national voice

Question 2

why regulation fails

Answer 2

• human fallibility
• regulatory forbearance: failure to take prompt action
• regulatory capture: tendency of regulators to side with an interest group

Question 3

disincentives that delay regulators from intervening (4)

Answer 3

• uncertainty whether the company can recover on its own
• company is a major player in the market or community, or is politically connected
• failure on a regulator’s watch can negatively affect his/her reputation
• could result in a dispute with the company, requiring more regulatory resources

Question 4

checks and balances within U.S. insurance regulation (3)

Answer 4

• duplication - regulators in each state; but increased cost must be balanced with efficiency
• peer review and peer pressure - most effective in a culture of cooperation with free-flowing information
• diversity of perspective - compromise tends to produce centrist solutions

Question 5

lessons from state insurance regulation for efficient regulatory coordination (4)

Answer 5

• regulators must have confidence in one another
• free sharing of information
• ability for regulators in one jurisdiction to act if dissatisfied by actions of another regulator
• credible mechanisms to resolve situations where assets are insufficient to fund all claims

Question 6

areas for further improvement of state insurance regulation (4)

Answer 6

• reliance on rating agencies in RBC
• securities lending reporting and requirements
• impact of unregulated affiliates on insurers
• ability to act with a single voice

Question 7

five NAIC principles for nationwide system of insurance

Answer 7

• uniform standards where appropriate, but local standards where necessary
• states have responsibility for setting and enforcing standards
• state regulators have equal regulatory standing with other functional regulators
• structure should provide mechanisms for collaboration, including international collaboration
• system should not prejudice states’ authority to impose taxes and fees