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Old 02-08-2020, 05:59 PM
JohnTravolski JohnTravolski is offline
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Question Company Taking Legal Action to Challenge Regulation

I was reading chapter 13 in Werner/Modlin about regulation regarding rates (regulatory constraints), and it was mentioned that:

"A company can take legal action to challenge the regulation."

It doesn't go into further detail. Can somebody give an example of how something like that would work?
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Old 02-08-2020, 06:27 PM
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Vorian Atreides Vorian Atreides is offline
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Keep in mind that "regulations" are a explicit interpretations of state law. That is, they explicate what the regulator will (or will not) allow in keeping with their view of what state law says.

For example, in many states, the law simply states that a company's rates cannot not unfairly discriminate. That's a pretty broad statement, so regulations are sometimes developed to help provide a more concrete statement of what is (or is not) unfair discrimination.

To illustrate, suppose that Mississippi DOI put out a new regulation stating that properties with the same physical characteristics have to have the same rate, regardless of location. That is, a risk that is 500 feet from the Gulf shore line that has the same physical characteristics (from a rating perspective) as a risk that is 500 feet from the Tennessee border must be charged the same.

Now while one might say that companies could start not writing business in both locations; let's say by dropping (or non-renewing) risks that are on the coastline given their potential for extremely large losses. However, a company that might be writing multiple lines are going to be adversely impacted as they're also likely to lose any policies in other lines by doing so. Or they're forced to raise rates for their inland policies (thereby, becoming extremely uncompetitive) to remain solvent.

Bottom line: this company will take legal action as the regulation creates an undue burden and inhibits fair competition in the state.
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Old 02-09-2020, 03:54 AM
JohnTravolski JohnTravolski is offline
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Great example, thank you.
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