2016 Fall Q5
Hi, I really hate to ask this because I am struggling to even phrase my question so this might appear to be redundant, but I think if I ask this way, then it might help me formulate a better question afterwards. In general, I am struggling to understand both the question and solutions because the examiner's report is going in too many different directions for me to catch on to something I can relate to past studying.
Based on what I am reading in the wiki article, here (below) is how I would phrase my solution, can you tell me if there are any corrections that need to be made? Or if there are any items which do not need to be stated?
Proposal for rate regulation and solvency regulation.
•For rate regulation, I propose that this be at the state level and states should use the “file and use” method.
•For solvency regulation, I propose that this be at the federal level, and the government should use IRIS ratios to assess the solvency of insurance companies.
Describe 2 potential advantages with this proposal.
•Advantages for rate regulation at state level using “file and use” method.
o Insurers can respond quickly to changing conditions
o Regulators can still review rates and suggest modifications as necessary
•Advantages for solvency regulation at federal level using IRIS ratios to assess solvency.
o Lower costs for insurers because rules are uniform across states
o Easier for insurers to enter foreign markets if foreign regulators are familiar with a uniform system for evaluating financial health
Describe 2 potential disadvantages with this proposal.
• Disadvantages for rate regulation at state level using “file and use” method.
o Increased costs since regulations may be different across states
o Regulator has belated control so unfair rates may enter the market before regulator can take action
• Disadvantages for solvency regulation at federal level using IRIS ratios to assess solvency
o No duplication of review so likelihood of error is greater
o No diversity of opinion so flaws in the regulatory system may persist
Comments
Yes, I think these answers are acceptable, as they are mostly in line with the sample answers.
*promote competition in reinsurance market
*reflect globalization of insurance (by recognizing foreign insurers & streamlining regulation)
*reduce penalties for unauthorized reinsurers that are strongly capitalized
The second bullet point I think should say alien insurers since it is discussing the globalization of insurance.
I am also familiar with the convention of using "foreign" for other U.S. states and "alien" for foreign countries. But this article uses "foreign" for foreign countries, and makes very little use of "alien." That must be why the wiki notes are also oriented this way.