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Flashcards in G12. Vaughn Deck (15):

List 3 problems with regulation:

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


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

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


2 causes of Regulatory Forbearance:

1. Chance the insurer will survive
2. Shutting down an insurer is difficult


Describe Regulatory Forbearance

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


Describe Regulatory Capture

Tendency of regulators to side with an interest group


4 reasons that it is difficult to shut down a troubled insurer:

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


List 2 responsibilities of NAIC's Financial Analysis Division (FAD):

1. Performs ongoing financial analysis of all nationally significant insurers
2. Identifies trends, benchmarks, identifies troubled companies


3 types of Checks and balances in US regulation:

1. Duplication
2. Peer Pressure
3. Diversity of Perspective


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:

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


Briefly describe the purpose of NAIC's Financial Analysis Working Group (FAWG):

Collaborate to work on problems of potentially troubled insurers


Explain why there is a need to balance regulatory costs vs benefits

-Overregulation imposes unnecessary costs
-Insufficient regulation causes unnecessary harm to consumers and taxpayers


List 5 Requirements for system to benefit most from peer review process:

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


5 principles of nationwide regulation proposed by NAIC to help achieve uniformity and reciprocity

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 and interaction with international and financial services regulators on matters that impact US insurance
5. The system shouldn't reduce state's authority to impose taxes and fees


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

1. Regulators must have confidence 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


Provide historical example to demonstrate value of duplication

Bernie Madoff- SEC did not catch his fraud and over $10b was stolen

Martin Frankel-Owned several insurers and was stealing money from them. Missed by several regulators but caught by regulators of MS. Able to make changes before it affected policyholders