Porter 2

Question 1

Describe purpose of The Sherman Act

Answer 1

• to prevent collusion and attempts to gain monopoly power

- insurers could no longer form groups to control rates and coverage

Question 2

Describe purpose of The Robinson-Patman Act

Answer 2

• prohibited price discrimination with the exception of price differentials that could be shown to result from differences in operating costs
• insurers could reduce premiums to drive out competition only if they could prove that the reduction resulted from increased efficiencies in operations

Question 3

What was the defense used by SEUA?

Answer 3

Paul v. Virginia ruled that insurance was not interstate commerce and therefore it was not subject to federal antitrust laws

Question 4

What was the decision on SEUA by the U.S. Supreme Court?

Answer 4

Decision overturned ruling by deciding insurance was interstate commerce, and federal legislation now applied to insurance

Question 5

Describe the activities of the NAIC in the wake of the SEUA decision

Answer 5

NAIC sought to appeal the decision. When the appeal was denied, NAIC sought to continue state regulation resulting in passage of McCarran-Ferguson Act.

Question 6

Outcome and Impact of Paul v. Virginia

Answer 6

Outcome: ruling that insurance was not interstate commerce and it should be regulated by the states and not the federal government.

Impact: regulated by states, bureau ratemaking allowed

Question 7

Outcome and Impact of US v SEUA

Answer 7

Outcome: ruling that insurance was interstate commerce and therefore it was subject to federal regulation

Impact: bureau ratemaking not allowed, federal antitrust laws (Sherman Act, Clayton Act, Federal Trade Commission Act) apply

Question 8

Outcome and Impact of McCarran-Ferguson Act

Answer 8

Outcome: returned insurance regulation to the states and exempted insurance from federal antitrust law provided that relevant activities were regulated by the states and did not involve boycott, coercion, or intimidation

Impact: bureau ratemaking was allowed as long as it was regulated by the states. Most states passed prior approval regulation

Question 9

Identify 4 activities of the SEUA that led to criminal indictments

Answer 9

• boycotting of agents who sold non-SEUA insurance
• collusion to set rates
• fought rate filings from non-SEUA members
• mandated inclusion in rating bureau

Question 10

Describe 2 main questions considered by the Supreme Court in analyzing the SEUA case

Answer 10

• Did congress intend the Sherman Act to prohibit insurer’s conduct of monopolizing business?
• Do insurance transactions across state lines constitute “commerce among several states”, which will subject them to Congressional regulation?

Question 11

Purpose of excess & surplus lines market

Answer 11

to provide coverage for unusual risks with high policy limits, or those that cannot find coverage in the admitted market in the state

Question 12

3 ways the excess & surplus lines market is regulated

Answer 12

• agents and brokers must be specially licensed to place business with xs and surplus lines insurers
• there are minimum financial requirements for insurers looking to write these plicies
• there is diligent search criteria in which producer must sign an affidavit that a diligent search of the admitted market was performed

Question 13

3 exceptions for McCarran-Ferguson Act

Answer 13

• Sherman Act still prohibits boycott, coercion, and intimidation
• if states do not regulate an aspect of insurance, then federal antitrust laws apply
• a federal law that regulates a specific activity of insurance supersedes state laws with respect to that aspect or activity

Question 14

Describe purpose of Clayton Anti-Trust Act

Answer 14

• identified and made illegal activities that lessened competition or created monopoly power
• examples include price discrimination, requiring purchase of one product with the purchase of another, and mergers between competitors

Question 15

5 arguments in favor of Congress’ regulation of insurance in the SEUA decision

Answer 15

• insurance is not a business that is distinct in each of the states - it is interconnected and interdependent among the states
• only 18 out of more than 200 SEUA members were domiciled in only 1 of the 6 SEUA states
• intangible products, such as electric impulses of telegraph transmissions, were subject to Congressional regulation
• other businesses make sales contracts in states where they do not have headquarters, and these are subject to the Commerce Clause
• no business that is transacted over state lines is beyond the regulatory powers of congress. Insurers should not be an exception

Question 16

Argument for and against compacts

Answer 16

good: in the public’s best interest if it prevents insolvencies
bad: compacts deter open and free competition which can lead to excessive profits

Question 17

In 1948, the NAIC approved two model rate regulation bills. What were the two main purposes of these bills?

Answer 17

• ensure rates not excessive, unfairly discriminatory, and were adequate
• allow cooperation in setting rates

Question 18

Describe the NAIC model rate regulation bills

Answer 18

• required prior approval of rates
• explained how to file rates
• described the role of rating organizations
• recommended anti rebating provisions

Question 19

In 1947, the NAIC adopted the Act Relating to Unfair Methods of Competition with the purpose to preempt application of the FTC Act to insurance industry. List 7 activities deemed to be unfair and deceptive

Answer 19

• misrepresentation and false advertising of policies
• false information and false advertising in general
• defamation
• boycott, coercion, and intimidation
• false financial statements
• unfair discrimination
• rebating

Question 20

After McCarren, describe 3 insurance regulatory actions to help with the concerns of insurer insolvencies

Answer 20

• Guaranty Association Model Act: all states currently have guaranty funds
• NAIC implemented Early Warning Tests program (IRIS): goal to prevent need for guaranty fund assessments by taking over insurers and returning them to active operation or merging them with other going concerns
• NAIC adopted accreditation program: create similar financial solvency regulation standards in all states

Question 21

After McCarran, briefly describe three ways regulators have addressed unavailable or unaffordable insurance coverages

Answer 21

Availability:

• majority of states have formed FAIR plans: Insurance pool through which private insurers collectively address an unmet need for property insurance on urban properties
• laws governing captive insurance organizations: insurers that insureds own and control
• Buyers’ guides explaining standard policies and option

Affordability

• 1968 National Flood Insurance Act
• 2002 TRIA provided transparent system of shared public and private compensation for insured losses resulting from terrorist acts
• 1981 Risk Retention Act to address affordability for commercial insurance

Question 22

Describe the actions taken by the National Insurance Convention (NIC) when formed in 1871

Answer 22

• developed a constitution setting forth the regulators’ goals
• designed a uniform accounting statement
• adopted guidelines for insurer taxation
• adopted first model law which covered items such as Commissioner’s duties, and Regulation of fire, life, and marine insurers

Question 23

Describe the difficulty to insurers when they began writing auto insurance in addition to property

Answer 23

• DOIs didn’t allow multiline insurers
• Applicant needing both coverages had to purchase two policies
• New York amended laws and allowed package policies: two insurers needed and would share premiums and losses

Question 24

List 3 market failures and imperfections that Regulation is particularly concerned with

Answer 24

• Insurer insolvencies
• Unavailable and unaffordable insurance coverages
• Inequitable treatment of insurance consumers

Question 25

Describe the key characteristic of Surplus line laws

Answer 25

freedom from state-imposed rate and form requirements for non admitted insurers - rate and forms not regulated - flexibility to adjust and quickly meet insured's needs

Question 26

Briefly describe 3 concerns created by Gramm-Leach-Bliley Act

Answer 26

- privacy of personal financial information - ability of state regulation to serve an integrated and global financial services market adequately - consumers' desire or need for integrated financial services