Rate Regulation

Question 1

political theory of regulation

Answer 1

attention is greatest for issues that attract voter interest and are easy for policymakers to understand

Question 2

three ways insurance product is unique

Answer 2

• rates are set before actual costs are known
• regulatory environment differs by state
• industry has many information-sharing and joint product-development mechanisms

Question 3

P&C Ratemaking Principles

Answer 3

1) A rate is an estimate of the expected value of future costs
2) A rate provides for all costs associated with the transfer of risk
3) A rate provides for the costs associated with an individual risk transfer
4) A rate is reasonable and not excessive, inadequate, or unfairly discriminatory if it is an actuarially sound estimate of the expected value of all future costs associated with an individual risk transfer

Question 4

statistical agents v. rating bureaus

Answer 4

• statistical agents collect and report loss experience

* rating bureaus perform actuarial analyses in addition to collecting data

Question 5

degree of rate regulation and rationale for ocean marine insurance

Answer 5

• very little regulation
• highly individualized risks
• knowledgeable buyers and sellers

Question 6

degree of rate regulation and rationale for title insurance

Answer 6

• little regulatory review
• few rating or risk evaluation factors; underwriting and exposure identification are key to controlling losses
• costs driven more by business expense than insured losses

Question 7

degree of rate regulation and rationale for surety

Answer 7

• little regulatory review

* fewer statistically based rating factors; risk evaluation is subjective

Question 8

degree of rate regulation and rationale for private passenger auto insurance

Answer 8

• regulatory review of overall rates and details of rating plan
• legally required and socially desirable for consumers to purchase
• complex rates and classification system
• uninformed customers

Question 9

degree of rate regulation and rationale for commercial general liability insurance

Answer 9

• general regulation, more during tight markets

* sophisticated buyers

Question 10

degree of rate regulation and rationale for work comp insurance

Answer 10

• close regulation: prior approval of rates and classification system
• legally required of most employers
• complex rates and classification system

Question 11

degree of rate regulation and rationale for inland marine insurance

Answer 11

• generally only informational filings required
• highly individualized risks
• diverse coverages and classifications