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Describe background of Paul v. Virginia

Paul applied to become licensed insurer in home state of VA for NY insurers. VA denied because insurers had not deposited required foreign insurer bond. Paul sold policies anyway and was arrested


Describe Supreme Court verdict for Paul v. Virginia:

Insurance is a contract delivered locally, thus insurance contract not interstate commerce. States could continue to regulate own insurance market without violating Constitution


Briefly describe 2 schools of thought about insurance compacts:

1. Compacts deter open and free competition
2. In public's best interests if it prevented insolvencies


Briefly describe the Sherman Act of 1890

Prohibits collusion in attempts to gain monopoly power


List activities for which the SEUA received criminal indictments:

-Continuing agreement and concert of action to take control of 90% of the fire & allied lines market
-Fixing premium rates and agents' commissions
-Using boycott and other forms of coercion and intimidation to force non-SEUA members to comply
-Withdrawing rights of agents to represent SEUA members if they also represented non-SEUA companies
-Threatening insurance consumers with boycott and loss of patronage if they didn't purchase insurance from SEUA members


Briefly describe why the indictments against SEUA were initially dismissed:

Based on U.S. Supreme Court's decision in Paul v. Virginia


2 key questions considered by the court when making the decision on SEUA

1. Did Congress intend the Sherman Act to prohibit insurer's conduct of restraining/ monopolizing business?
2. Do insurance transactions across state lines constitute "commerce among several states", which will subject them
to Congressional regulation?


List some factors considered when determining whether insurance transactions across state lines constitutes "commerce among several states":

-Insurance is not a business that is distinct in each of the states - it is interconnected and interdependent among the states
-Only 18 out of more than 200 SEUA members were domiciled in 1 of the 6 SEUA states
-Intangible products, such as electric impulses of telegraph transmissions, were subject to Congressional regulation
-Other businesses make sales contracts in states where they do not have headquarters, and these are subject to the Commerce Clause
-Not a single business conducting business across state lines is beyond the regulatory powers of congress. Insurers should
not be an exception


Immediate effect of the SEUA decision

Federal legislation now applied to insurance
-The Sherman Act (1890) prohibits collusion in attempts to gain monopoly power
-The Clayton Act (1914) identified and made illegal practices that lessened competition or created monopoly power


Describe 2 practices prohibited by the Clayton Act of 1914

-Price discrimination
-Tying: requiring purchase of 1 product to purchase another


Briefly describe the Robinson-Patman Act (1936)

Amendment to Clayton Act; required price differences to be justied by reduced operating costs


Briefly describe the Federal Trade Commission (FTC) Act (1914)

Identied and made illegal unfair methods of competition and unfair or deceptive trade practices


State regulators and insurance industry believed some forms of cooperation necessary. As a result, a subcommittee on Federal Legislation was established.
List some of its recommendations

-Congress must be pressured to enact legislation under Commerce Clause which allows states to continue to regulate
-Sherman Act and Clayton Act must be amended to allow cooperative arrangements to establish adequate rates and coverages
-FTC Act and Robinson-Patman Act must be amended to exclude insurance


Describe the McCarran-Ferguson Act of 1945

Returned regulation of insurance back to states, as it was "in the public interest"


List the exceptions for which the McCarran-Ferguson Act will not apply:

-If states are not regulating the activities
-Sherman Act continues to apply to the use of boycott, coercion, or intimidation
-If Congress passes a law that applies only to the insurance industry, it will supersede any state regulation


Following the McCarran-Ferguson Act, the NAIC and state legislatures began developing and implementing various insurance laws. Briefly describe what these laws were designed to do.

-Allow cooperation in setting rates
-Keep Congress from controlling competition


Following the McCarran-Ferguson Act, the NAIC approved two model rate regulation bills. List 2 purposes:

1. Ensure rates not excessive, unfairly discriminatory, and were adequate
2. Allow cooperation in setting rates, as long as it didn't hinder competition


List how the NAIC bills (introduced after
McCarran-Ferguson) achieved their purposes:

-Required prior approval of rates
-Explained how to file rates
-Described the role of rating organizations
-Recommended anti-rebating laws


Describe the anti-rebating laws

Prohibits insurers from returning portions of premiums and producers from returning portions of commissions to persons
who purchase insurance


List some activities deemed to be unfair and deceptive by the NAIC Act Relating to Unfair Methods of Competition:

-Misrepresentation and false advertising of policies
-False information and false advertising in general
-Boycott, coercion, and intimidation
-False financial statements
-Unfair discrimination


Upon what areas is regulation focused on after McCarran-Ferguson:

The following market failures and imperfections:
-Insurer insolvencies
-Unavailable and unaffordable insurance coverages
-Inequitable treatment of insurance consumers


List some NAIC programs (after McCarran) to address insurer insolvencies:

-Guaranty Association Model Act of 1969
-1971 NAIC implemented Early Warning Tests program (1977 IRIS)
-1989 NAIC adopted accreditation program


After McCarran, briefly describe three ways regulators have addressed unavailable or unaffordable insurance coverages

-To address availability, majority of states have formed FAIR plans
-Another way to address availability is with laws governing captive insurance organizations
-Buyers' guides explaining standard policies and options can also help consumers find available and affordable choices
-1968 National Flood Insurance Act addressed affordability
-2002 TRIA provided transparent system of shared public and private compensation for insured losses resulting from terrorist acts
-1981 Risk Retention Act to address affordability of commercial insurance


Briefly describe Surplus Lines insurance:

Insurance coverages obtained from nonadmitted insurers when protection is not available from admitted insurers. Provide
coverage for risks that are unique, require high limits, or have difficult underwriting characteristics


List some common characteristics of Surplus Lines insurance:

-Permit only specially licensed producers to place surplus lines business
-Licensee must make placement with
unauthorized/nonadmitted insurers that meet specied financial and managerial requirements
-Before placement can occur, risk must be declined by admitted market through a "diligent search" of state's admitted insurance market


What does the GLB Financial Services Modernization Act conclude about the issue of state vs. federal regulation:

Each segment of financial services business is regulated separately: states continue to have primary authority over insurance


List some concerns created by GLB

-Privacy of personal financial information
-Ability of state regulation to serve an integrated and global financial services market adequately
-Consumers' desire or need for integrated financial services