Chapter 8: Government Regulation of Insurers

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Goals of Insurance Regulation

• Maintain insurer solvency  

• Educate consumers 

• Ensure reasonable rates 

• Make insurance available 

Maintain Insurer Solvency

Why do regulators care about the solvency of insurers? 

• Insurance contracts are worthless if the insurer goes bankrupt.  

• Potential financial hardship for consumers. 

What would happen if a hurricane struck Florida and led an insurer to insolvency?

Guarantee Fund

Educate Consumers

• Insurance policy is a complex legal document. 

• Difficult to compare insurance coverages and costs. 

• Insurance is a contract of adhesion. 

• Prevent unethical insurers or agents from taking advantage of consumers. 

Ensure Reasonable Rates

• Ensure economically reasonable premium for needed coverages (health, fire, auto liability). 

• Prevent excessive/unsubstantiated rate increases. 

• Ensure premiums are sufficient to pay losses. 

Make Insurance Available

• Fair Access to Insurance Requirements (FAIR Plans) 

• Restrict the market exit of insurers.