Risk Chap 8

Front 1

Reasons for insurance regulation

Back 1

1. Maintain insurer solvency
2. Compensate for inadequate consumer knowledge
3. Ensure reasonable rates
4. Make insurance available

Front 2

Historical development of insurance regulation

Back 2

1. Insurance regulation has historically been conducted mostly at the state level in the U.S.
2. Paul v. Virginia (1868): affirmed the right of the states to regulate insurance
3. U.S. v. South-Eastern Underwriters Association (1944): Court ruled that insurance was interstate commerce when conducted across state lines and was subject to federal regulation
4. McCarran-Ferguson Act (1945): federal law which had the effect of leaving most insurance regulation to the states
5. Financial Modernization Act (1999): changed federal law that earlier prevented banks, insurers, and investment firms from competing outside their core area

Front 3

The three principal methods of regulating insurers are

Back 3

1. Legislation (state and federal)
2. Court decisions, e.g., interpreting policy provisions
3. State insurance departments

Front 4

domiciled in the state

Back 4

domestic insurer

Front 5

is an out-of-state insurer that is chartered by another state, but licensed to operate in the state

Back 5

foreign insurer

Front 6

an insurer that is chartered by a foreign country, but is licensed to operate in the state

Back 6

alien insurer

Front 7

State insurance commissioners have the authority to approve or disapprove new policy forms before the contracts are sold to the public

Back 7

Form regulation

Front 8

1. Income taxes
2. State premium taxes

Back 8

Insurer taxation

Front 9

Arguments for federal regulation

Back 9

1. Uniformity of laws
2. Greater efficiency
3. More competent regulators

Front 10

Arguments for state regulation

Back 10

1. Greater responsiveness to local needs
2. Greater opportunity for innovation
3. Unknown consequences of federal regulation
4. Decentralization of political power
5. Promotion of uniform laws by the NAIC

Front 11

Proponents argue (purpose) for credit based insurance :

Back 11

1. There is a high correlation between an applicant’s credit record and future claims experience
2. Underwriting and rating can be more objective and consistent

Front 12

Critics argue against credit based insurance:

Back 12

1. The use of credit data in underwriting or rating discriminates against certain groups
2. Credit reports often contain errors that can harm insurance applicants
3. Credit-based scoring is socially unacceptable