Term
| Contrast how Paul v. Virginia and Southeastern Underwriters legal cases affected insurance regulation. |
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Definition
| Paul held that insurance was exempt from federal regulation, while SEU held that insurance was subject to federal regulation. |
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Term
Describe the impact of each of the following:
a) Paul v VA
b) SEUA
c) McCarran Ferguson |
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Definition
a) This 1869 legal decision serves as the foundation of the long standing belief that insurance is not subject to federal regulation.
b) This 1944 legal decision overturned previous decisions and made insurance subject to federal statutes.
c) The act was passed by Congress in 1945 and restored the state's responsibility for insurance regulation. |
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Term
| Identify the two goals of solvency regulation. |
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Definition
- Reducing the insolvency risk (through monitoring controls)
- Protecting the public against loss when insurers fail |
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Term
| Insurance regulation is designed to protect consumers against fraudulent actions of insurance representatives. Describe two potential types of fraudulent acts. |
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Definition
- An insurance representative sells insurance that is not needed.
- A producer misrepresents the nature of coverage to make a sale.
- An insurer refuses to pay a legitimate claim.
- An insurer unfairly reduces a claim amount paid.
- A dishonest insurance manager contributes to insurer insolvency. |
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Term
| Explain how a state insurance department responds when an insurer becomes insolvent? |
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Definition
- The insurer is placed in receivership by the state insurance department
- Liquidation according to the state's insurance code
- Creditors treated equally
- Priority system for disposal of assets is set up |
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Term
Contrast the following terms.
(a) Domestic insurer
(b) Foreign insurer
(c) Alien insurer |
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Definition
(a) Domestic insurer-Does business in its home state
(b) Foreign insurer-Is allowed to do business in a state that is not its home state
(c) Alien insurer-An insurer that is domiciled outside the U.S. |
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Term
| Although the insurance industry operates in a rapidly changing environment, there are three issues related to regulation that have never been fully resolved. Identify three recurring issues in insurance regulation. |
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Definition
- Focus of regulatory control-whether insurance should be regulated by state or federal governments - or both.
- The extent to which insurance should be regulated.
- Whether to require, encourage, or prohibit collaboration among insurers. |
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Term
| Identify four "unofficial regulators" that influence insurer activity. |
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Definition
- Financial rating agencies
- Insurance advisory organizations
- Insurer trade organizations
- Consumer organizations |
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Term
| Identify three types of regulatroy activities typically undertaken by state insurance departments. |
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Definition
-Approving policy forms
-Holding rate hearings and reviewing rate filings
-Licensing new insurers
-Investigating policy holder complaints
-Rehabilitating or liquidating insolvent insurers
-Issuing cease-and-desist orders
-Conducting periodic audits of insurers
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Term
| Identify three changes resulting from the settlement in the Attorneys General Lawsuit. |
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Definition
- Establishment of the Public Entity Risk Institute
- Reimbursement of the states and private plaintiffs for legal expenses
- Reorganization of ISO
- Replacement of insurer committees with insurer advisory panels
- Rate and form decisions by ISO staff instead of insurer committees
- Elimination of perception that ISO provided vehicle of insurer collusion |
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Term
| What are three types of sales department activities that are prohibited by law. |
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Definition
- Dishonesty or fraud
- Misrepresentation
- Twisting
- Unfair discrimination
- Rebating |
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Term
| Explain why the McCarran Ferguson Act is an important milestone in insurance regulation. |
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Definition
| Subject to certain conditions, McCarran Ferguson returned the regulation of insurance to the states. |
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Term
Briefly explain whether each of the following insurance personnel must be licensed.
(a) Producers
(b) Brokers
(c) Insurance consultants
(d) Claim adjusters |
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Definition
(a) Producers must be licensed in each state in which they do business.
(b) Brokers must be licensed in each state in which they do business.
(c) Licensing requirements for consultants vary among the states that have a license requirement.
(d) Claim adjusters must be licensed in some states, not others. |
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Term
| What events led to the filing of the Attorneys General Lawsuit? |
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Definition
| The conspiracy to create a global boycott of certain types of commercial general liability coverages, particularly coverage for environmental damages stemming from pollution. |
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Term
Describe the Attorneys General Lawsuit:
a) Who were the defendants?
b) What illegal action did the attorneys general allege?
c) What insurance products were involved? |
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Definition
They charged that
a) insurance companies, reinsurers, and industry organizations
b) had conspired to create a global boycott
c) certain types of commercial general liability coverages, particularly for environmental damages from pollution |
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Term
| Insurance regulation occurs primarily at the state level, but the issue of federal regulation is often raised. What aguments have been advanced in favor of federal regulation? |
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Definition
-Federal regulation can provide regulatory uniformity across all states.
-Federal regulation would be more efficient.
-Federal regulation could attract higher-quality personnel. |
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Term
| Identify the three reasons for insurance regulation. |
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Definition
- To protect consumers
- To maintain insurer solvency
- To avoid destructive competition |
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Term
| Describe two types of entities that rely on insurance company financial ratings and why the ratings are important. |
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Definition
- Corporate risk managers, independent insurance agents and brokers, consumers and others consult these ratings when choosing an insurer.
- Contractors and others are often required to furnish a certificate of insurance from a company with a specified minimum rating.
- Banks and lending institutions require mortgagees to provide evidence of insurance from a company with a specified solvency rating. |
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Term
| Describe how the National Association of Insurance Commissioners (NAIC) responded to requirements in the Gramm-Leach-Bliley Act (GLB) for full reciprocal licensing arrangements for insurance agents. |
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Definition
| NAIC created a Producer Licensing Model Act. The act requires states to establish either a system of reciprocal producer licensing or uniform standards for licensing. |
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Term
| Describe the underwriting cycle. |
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Definition
| The underwriting cycle is a cyclical pattern of insurance pricing in which a soft market is followed by a hard market before the pattern repeats itself. |
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Term
Explain which one of the following arrangements would be illegal under the Financial Services Modernization Act.
National Bank #1 starts an operating subsidiary to underwrite insurance. National Bank #2 starts an insurance affiliate under a bank holding company structure. |
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Definition
| National Bank #1 cannot start an operating subsidiary to underwrite insurance because it would be too easy for a failing bank to tap insurance assets. |
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Term
| Identify one of the three recurring issues in insurance regulation and provide a brief illustration of that issue. |
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Definition
(Any valid illustration - these are examples): Issue: Whether insurance should be regulated by state or federal governments - or both. Illustration: A state court must decide whether it has jurisdiction over an insurance dispute or whether a federal court has appropriate jurisdiction over the case.
Issue: The extent to which insurance should be regulated. Illustration: A state legislature must decide whether to put a cap on auto insurance rates that have soared in the state capital metropolitan area.
Issue: Whether to require, encourage, or prohibit collaboration among insurers. Illustration: A state insurance department decides whether it should take action against several insurers rating homeowners policies. |
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