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Assignment 2 - Development of Insurance Regulation

Terms in this set (27)

• 1970s-1980s - state regulators began to enact requirements on policy cancellation, including notice requirements and providing reasons for cancellation

• 2001 - NAIC Life Insurance Illustration Model Regulation introduced to: (1) provide illustration rules to protect consumers, (2) provide illustration formats, (3) prescribe standards for insurers when using illustrations, (4) specify illustration disclosures, (5) ensure illustrations are not misleading, and (6) make illustrations more understandable

• External forces - competitive forces cause insurers to undertake greater risk which increases frequency of failure/insolvency; markets are becoming increasingly international and catastrophes cast attention on rate regulation and coverage availability; these forces cause Congress to question ability of states to regulate; some state regulators have focused efforts on higher capital standards, expanded financial reporting, and improved monitoring

• Change in industry structure - P&C insurers cover wide range of risks, long payouts on commercial insurance makes it hard to price and subject to manipulation; cost inflation sends commercial customers to alternative coverage sources, which increases competition; market is becoming more diverse, leaving small insurers to fill niche markets; these forces place pressure on regulators to balance solvency against competition and innovation; geographically expanding operations makes regulation more challenging and requires more interstate coordination

• Market problems - cost inflation and natural catastrophes lead insurers to raise prices and decrease availability in loss-prone areas; with 1000's of insurers doing business in a given state and mostly foreign, regulators tend to focus on firms domiciled in their state and defer the same to other states' regulators, creating large interdependence and corresponding vulnerability