3 Maintain Insurer Solvency 1. Premiums are paid in advance but protection extends into the future.2. Policyowners are exposed to financial insecurity if insurers become insolvent and claims are unpaid.
4 Compensate for Inadequate Consumer Knowledge Insurance contracts are complex legal documents.It is difficult to compare and determine the monetary value of insurance contracts.3. Protection is needed against unethical agents
5 Ensure Reasonable Rates Make Insurance Available
7 Early Regulatory Efforts 1. State-chartered companies2. State insurance commissions
8 Paul vs. Virginia1. Ruled that insurance was not interstate commerce2. The states rather than the federal government had the right to regulate the insurance industry.
9 This decision stood for about 75 years until the Supreme Court reversed it in 1944.
10 South-Eastern Underwriters Association Case 1. Reversed the Paul v. Virginia decision-- court ruled that insurance was interstate commerce when conducted across state lines and was subject to federal regulation.2. The decision cast doubt on the legality of private rating bureaus and the power of the states to regulate and tax the insurance industry.
11 To resolve the confusion and doubt that existed after the South-Eastern Underwriters decision, Congress passed the McCarran-Ferguson Act (Public Law 15) in 1945.
12 McCarran-Ferguson Act (Public Law 15) The McCarran-Ferguson Act states that continued regulation and taxation of theinsurance industry by the states are in the public interest.It also states that federal antitrust laws apply to insurance only to the extent that the Insurance industry is not regulated by state law.
14 Legislation1. State laws-- formation of insurance companies; licensing of agents and brokers; financial regulation; rates; sales and claims practices; taxation; rehabilitation or liquidation of insurers; protection of consumer rights2. Federal laws-- mail-order sales; advertising; sale of variable annuities; private pension plans
15 Courts1. Constitutionality of state insurance laws2. Interpretation of policy clauses and provisions3. Legality of administrative actions by state departments
24 Advantages of Federal Regulation uniformity of lawsgreater efficiencymore competent regulators
25 Advantages of State Regulation greater responsiveness to local needspromotion of uniform laws by NAICgreater opportunity for innovationunknown consequences of federal regulationdecentralization of political power
26 Shortcomings of State Regulation inadequate protection against insolvencyinadequate protection of consumersimprovements needed in handling complaintsinadequate market conduct examinationsinsurance availability studiesregulators overly responsive to insurance industry
28 Arguments for repeal of the McCarran Act include the following: a. The insurance industry no longer needs broad anti-trust exemption.b. Federal legislation is needed because of the defects in state legislation.
29 Arguments against repeal of the McCarran Act include the following: a. The insurance industry is already highly competitive.b. Small insurers would be harmed.c. Insurers may be prevented from developing common coverage forms.d. Dual regulation may result from repeal of the McCarran Act.
30 Current Issues in Insurance Regulation Increase in Mergers and AcquisitionsGrowth of the Internet and E-CommerceInsolvency of InsurersQuality of Insurance RegulationDeregulation of Commercial LinesCredit scoring