Chapter 8: Government Regulation of Insurers

Goals of Insurance Regulation (insurance is regulated at the state level; so some states are more consumer friendly or states are more insurer friendly; states have different laws)

Maintain insurer solvency
Educate consumers
Ensure reasonable rates
Make insurance available

Maintain Insurer Solvency (solvency = insurance company trying to stay in business; insolvent = don’t have enough money to pay off their losses)

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? Some insurance companies cannot pay off claims. Each state has a guarantee fund. The purpose is to pay losses when an admitted insurance is insolvent. The fund will kick in and pay the losses but there is a cap.

Educate Consumers (consumers are the buyers of insurance; insurance company holds all the power)

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 (insurance you are required to have; make sure it is affordable and acquirable; regulators make sure the increases in premiums are not excessive if a storm system does occur; regulators make sure they are charging enough to pay off losses)

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 (make sure insurance is available to everyone; regulators make insurance companies insure in places that they know are likely to endure risk from storm systems; they make sure the consumers have access to it)