Porter 3

Question 1

Define the “business of insurance” based on court decisions rendered to date

Answer 1

Must have one or more of the following characteristics:

1. The insurer spreads or underwrites the policyholder’s risk
2. The insurer and the insured have a direct, contractual agreement
3. The activity is unique to entities within the insurance industry

Question 2

Describe the relationship between state and federal regulation of the “business of insurance”

Answer 2

The business of insurance is subject to State regulation except in the following circumstances:

• Sherman act still applies for boycott, coercion, and intimidation
• Federal anti-trust laws applied to the extent that state laws did not regulate such activities
• Federal laws enacted specifically to regulate the business of insurance preempted any state laws applying to the same activities addressed by the federal laws

Question 3

Explain the federal government’s role under the Product Liability Risk Retention Act

Answer 3

authorized formation of risk retention groups. Group could be licensed in one state and then could operate in all others. State governments would not have been able to authorize such an arrangement, since each state governs insurance affairs only in its own state

Question 4

List 3 principal causes of Product Liability insurance price and availability crisis of the 1970s.

Answer 4

• questionable ratemaking and reserving practices of insurers
• unsafe products
• uncertainties in the tort and legislation system

Question 5

Describe 2 examples of Federal intervention in the “business of insurance”

Answer 5

• Risk Retention Act: enabled product manufacturers, wholesalers, distributors, and retailers to form their own risk retention groups to spread and assume their products and completed operations exposures. Groups licensed in one state and permitted to operate in any other
• National Flood Insurance Act: NFIP established in 1968 as a federal response to a private insurance industry uninsurable risk. Federal Insurance Administration administers NFIP under direction of FEMA

Question 6

Briefly describe property/casualty insurers’ participation through Write-Your-Own (WYO) flood insurance program

Answer 6

• private insurers write flood and allow the federal government to function as a reinsurer in event of a flood loss. FIA still determines rates, limits, eligibility.
• Private insurers can issue flood policies at these rates and keep 30% for admin expenses

Question 7

Briefly describe a contract of adhesion

Answer 7

• contract drawn up by only one party, the insurer. Ambiguous language will be interpreted in favor of the insured

Question 8

Briefly describe the doctrine of reasonable expectations

Answer 8

• insured’s reasonable expectation of coverage will be honored even if that involves reading the policy provisions in ways not intended by the insurer

Question 9

List 7 services provided by Insurance Advisory Organizations

Answer 9

• filing rates or prospective loss costs and forms
• develop rating systems
• collect and tabulate statistics
• research topic important to members and the industry
• provide a forum for discussion of issues important to members
• educate members, the industry, insurance regulators, and the public about particular issues
• monitor regulatory issues of concern to members

Question 10

Consumer groups can have a strong influence on State Legislators. Consumer complaints have led to major legislation in insurance. Give 8 examples

Answer 10

• redlining prohibitions
• unfair claims practices laws
• unfair trade practices laws
• compulsory insurance laws
• high-risk driver pools
• FAIR plans
• windstorm and other catastrophe pools
• tort reform

Question 11

List 4 functions of Insurance Trade Associations

Answer 11

• prompt access to legislative developments
• can use association personnel as their lobbying forum
• participate on committees in drafting new legislation or influence changes to pending legislation
• continually watch for new regulations promulgated by state insurance departments