glad
04-18-2006, 12:36 PM
anyone think a running list of things to commit to memory is worthwhile?
Here's a start, for Section B: Regulation of Insurance, worth 25-30% of the exam. Please add lists I've missed (if you have "spare" time in this last week before the exam)
evolution of insurance regulation:
Paul vs VA: ins. not interstate commerce: upheld state reg
SEUA: insurance is "commerce": ins subj to fed laws (sherman, clayton, FTC)
Mc-F: reg. of "bus of ins." returned to states: conditions: states must regulate, fed keeps reg of labor relations, boycott coersion, intimidation
What the $$%^ is Montrose Claims?????
Defn of "business of Insurance"
-risk of insured is underwritten and spread by insurer
- there is a direct contractual relationship b/t insurer & insured
- activity is unique to insurance industry (what the #$%% is that supposed to mean; talk about nebulous)
functions of state Ins. Depts
-licensing companies & agents
-coverage regulation
-rate regulation
- examinations: financial & market (advertising & sales, claim handling, policy issue)
-regulation of agents & brokers
- claims adjusters( market conduct exams, require written reports on records of ins. adjusters, require claims adjs to be licensed)
-Fraud
-insurer receivership, rehab, liq.
-consumer services
functions of NAIC:
to serve public interest by assisting state ins achieve:
-promote public interest thru reg of ins.; fair, just & equit. treatment of ins cust.
- reliability of ins. institution as to SOLVENCY, Fin. Solidity and guaranty against loss
- maintenance & improvement of state reg. of ins. in responsive & efficient manner
Activities of NAIC:
- model laws
-accreditation: 1 laws of states must meet cert. MIN standards of NAIC models; 2 Reg. methods of states must be acceptable; 3 Dept practices must be adequate
- research
"Solvency"
maint. of cap above some min level ("technical" insolvency)
Roles of PHS:
-fin capacity
-marg. for risk & uncert
Risk unique to ins:
-price inadeq.
-reserve error
-und. risk
why Insurers become Insolvent: (this list comes from several readings. any thoughts on this; I'm sure I heard CAT's somewhere)
-rapid prem. growth
-inadeq. rates & reserves
-Out of line exp
-lax controls over MGAs
-Reins. uncollectible
-Fraud
-CATS
Intervention Regulator may order:
-increase level of reins.
-reduce, suspend or limit vol of business written or renewed
-reduce gen or specific co. exps
-increase insurer's capital or surplus
-limit or withdraw from certain investments
-document adequacy of rates
3 courses for regulator:
-formal or informal supervision
-court-ordered rehab
-court-ordered liqidation
Liquidation: priority of distribution
1. costs & exp of admin the liquidation
2 partial payment of debts to employees for services rendered w/i 1 year of the order for liquidation (I don't really understand what this means, so if anyone has any thoughts, they'd be appreciated)
3. all claims for policy losses inc'd
4. claims for UEP & general creditors
Commissioners: Elected vs. Appointed pros and cons (in Brady book I think)
Elected pros:
-in office for full term (not subj to dismissal)
-appointed might continue reg. as predecessor, while elected would change stance
-aware of public's concerns
-not inclined to yield to special interests (as they appointed would)
Appointed pros:
-no need to campaign (so not influenced by donors)
-more likely to be knowledgeable about ins.
-less likely to be swayed by pub. opinion
-more likely to be perceived as a career state govt. employee interested in ins. regulation
Rate Regulation: Arguements & counter arguements for Rate Regulation
1. ins. industry's limited exemption from anti-trust laws facilitate collusion to increase prices. (BUT there is heterogeneity in prices & underwriting standares, and structural char's of ins markets are inconsistent with collusion to raise rates)
2. Consumers need protection against paying high rates (BUT preferred mode of regulation is greater info disclosure)
3. When ins. is compulsory, ins. rates need to be regulated (BUT inelastic demand does not produce excessive profits in competitive markets)
4. Selective supression of rates will encourage some to buy ins (BUT price regulation is a CRUDE method to provide subsidies)
5. Restrictions on RISK CLASS. => greater equity or fairness (BUT restriction on risk class. results in some paying more than their fair price AND reduces incentives to control losses)
Defn of Pareto Efficiency vs. Potential Pareto (Harr. & Doer.)
Computer Models:
4 assumptions of Prior models:
1. CAT activity in 20-30 year prior period was normal (it was NOT; it was "quiet")
2. Pop Demographics stable (NOT; more movement toward coastal areas)
3. Proportion of Insured loss by Peril is stable (NOT; fire protection has increased, changing the wind:non wind ratio)
4. Changes in coverage or construction practices did not change wind:non wind ratio (False, it did; => move to guaranteed repl cost, contents limits up, changes in construction made fire protection better, see 3)
Safeguards against manipulation:
1 require legal affidavit attesting that user has not manip. the model
2. req formal opinion from modeler on proper execution of the model when run by the insurer
3. modelers could provide regulators w/ rate ranges that reflect geog. building structure & deductible options
Disincentives for insurers to manipulate to raise rates:
1. lose customers if rate is not competive
2. model is also used for reins. evaluation so inflated losses increases need for & cost of reins.
3. inflated loss estimates put downward pressure on financial ratings.
Achieving Better estimates for Exposure benefits consumers:
1. comprehensibility of prices
2. rational behavior (take costs into account & act accordingly)
3. Fair pricing - reduce subsidies & reward consumers engaged in loss mitigation)
4. reduced informational risk to investors
5. stable pricing
benefits to regulators: improved tool for assessing financial solvency
Here's a start, for Section B: Regulation of Insurance, worth 25-30% of the exam. Please add lists I've missed (if you have "spare" time in this last week before the exam)
evolution of insurance regulation:
Paul vs VA: ins. not interstate commerce: upheld state reg
SEUA: insurance is "commerce": ins subj to fed laws (sherman, clayton, FTC)
Mc-F: reg. of "bus of ins." returned to states: conditions: states must regulate, fed keeps reg of labor relations, boycott coersion, intimidation
What the $$%^ is Montrose Claims?????
Defn of "business of Insurance"
-risk of insured is underwritten and spread by insurer
- there is a direct contractual relationship b/t insurer & insured
- activity is unique to insurance industry (what the #$%% is that supposed to mean; talk about nebulous)
functions of state Ins. Depts
-licensing companies & agents
-coverage regulation
-rate regulation
- examinations: financial & market (advertising & sales, claim handling, policy issue)
-regulation of agents & brokers
- claims adjusters( market conduct exams, require written reports on records of ins. adjusters, require claims adjs to be licensed)
-Fraud
-insurer receivership, rehab, liq.
-consumer services
functions of NAIC:
to serve public interest by assisting state ins achieve:
-promote public interest thru reg of ins.; fair, just & equit. treatment of ins cust.
- reliability of ins. institution as to SOLVENCY, Fin. Solidity and guaranty against loss
- maintenance & improvement of state reg. of ins. in responsive & efficient manner
Activities of NAIC:
- model laws
-accreditation: 1 laws of states must meet cert. MIN standards of NAIC models; 2 Reg. methods of states must be acceptable; 3 Dept practices must be adequate
- research
"Solvency"
maint. of cap above some min level ("technical" insolvency)
Roles of PHS:
-fin capacity
-marg. for risk & uncert
Risk unique to ins:
-price inadeq.
-reserve error
-und. risk
why Insurers become Insolvent: (this list comes from several readings. any thoughts on this; I'm sure I heard CAT's somewhere)
-rapid prem. growth
-inadeq. rates & reserves
-Out of line exp
-lax controls over MGAs
-Reins. uncollectible
-Fraud
-CATS
Intervention Regulator may order:
-increase level of reins.
-reduce, suspend or limit vol of business written or renewed
-reduce gen or specific co. exps
-increase insurer's capital or surplus
-limit or withdraw from certain investments
-document adequacy of rates
3 courses for regulator:
-formal or informal supervision
-court-ordered rehab
-court-ordered liqidation
Liquidation: priority of distribution
1. costs & exp of admin the liquidation
2 partial payment of debts to employees for services rendered w/i 1 year of the order for liquidation (I don't really understand what this means, so if anyone has any thoughts, they'd be appreciated)
3. all claims for policy losses inc'd
4. claims for UEP & general creditors
Commissioners: Elected vs. Appointed pros and cons (in Brady book I think)
Elected pros:
-in office for full term (not subj to dismissal)
-appointed might continue reg. as predecessor, while elected would change stance
-aware of public's concerns
-not inclined to yield to special interests (as they appointed would)
Appointed pros:
-no need to campaign (so not influenced by donors)
-more likely to be knowledgeable about ins.
-less likely to be swayed by pub. opinion
-more likely to be perceived as a career state govt. employee interested in ins. regulation
Rate Regulation: Arguements & counter arguements for Rate Regulation
1. ins. industry's limited exemption from anti-trust laws facilitate collusion to increase prices. (BUT there is heterogeneity in prices & underwriting standares, and structural char's of ins markets are inconsistent with collusion to raise rates)
2. Consumers need protection against paying high rates (BUT preferred mode of regulation is greater info disclosure)
3. When ins. is compulsory, ins. rates need to be regulated (BUT inelastic demand does not produce excessive profits in competitive markets)
4. Selective supression of rates will encourage some to buy ins (BUT price regulation is a CRUDE method to provide subsidies)
5. Restrictions on RISK CLASS. => greater equity or fairness (BUT restriction on risk class. results in some paying more than their fair price AND reduces incentives to control losses)
Defn of Pareto Efficiency vs. Potential Pareto (Harr. & Doer.)
Computer Models:
4 assumptions of Prior models:
1. CAT activity in 20-30 year prior period was normal (it was NOT; it was "quiet")
2. Pop Demographics stable (NOT; more movement toward coastal areas)
3. Proportion of Insured loss by Peril is stable (NOT; fire protection has increased, changing the wind:non wind ratio)
4. Changes in coverage or construction practices did not change wind:non wind ratio (False, it did; => move to guaranteed repl cost, contents limits up, changes in construction made fire protection better, see 3)
Safeguards against manipulation:
1 require legal affidavit attesting that user has not manip. the model
2. req formal opinion from modeler on proper execution of the model when run by the insurer
3. modelers could provide regulators w/ rate ranges that reflect geog. building structure & deductible options
Disincentives for insurers to manipulate to raise rates:
1. lose customers if rate is not competive
2. model is also used for reins. evaluation so inflated losses increases need for & cost of reins.
3. inflated loss estimates put downward pressure on financial ratings.
Achieving Better estimates for Exposure benefits consumers:
1. comprehensibility of prices
2. rational behavior (take costs into account & act accordingly)
3. Fair pricing - reduce subsidies & reward consumers engaged in loss mitigation)
4. reduced informational risk to investors
5. stable pricing
benefits to regulators: improved tool for assessing financial solvency