Difference between revisions of "Porter.6-Formation"
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Latest revision as of 21:10, 3 July 2024
Reading: Insurance Regulation, Insurance Institute of America, 2008. - Chapter 6 - Insurer Formation, Licensing & Market Regulation
Author: Porter, K.
| BA Quick-Summary: Porter 6 (Insurer Formation, Licensing, and Market Regulation)
Chapter 6 discusses the regulatory framework for forming, licensing, and marketing insurance companies. State regulations are primarily concerned with market conduct and solvency.
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Study Tips
Spend at most 30 minutes on this reading.
BattleTable
- this reading has not been tested on any exam from the year 2012 to Fall 2019 when the exams stopped being published.
reference part (a) part (b) part (c) part (d) no prior questions
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In Plain English!
Insurers must be licensed in state A to write policies in state A, but they can be incorporated anywhere. An insurer is called:
- domestic - if incorporated in state A, licensed in state A, writes policies in state A
- foreign - if incorporated in state B, licensed in state A, writes policies in state A
- alien - if incorporated outside of the U.S., licensed in state A, writes policies in state A
The licensing requirements are different for each but may depend on something called seasoning, which just means the insurer already has experience operating in another state. (Seasoning requirements can be relaxed if the applicant has a strong capital base or is owned by a seasoned insurer.)
There may also be requirements surrounding capital (obvious) as part of something called an organizational exam. This exam might include verification that:
- capital requirements are met
- management team is in place
- records are in good order
- rates have been approved
Market conduct regulation of an insurer includes conduct surrounding:
- sales & advertising
- underwriting
- rates
- claims settlement
Those items of market conduct are pretty obvious and if you were asked for that list on the exam, you could probably come up with it without having specifically memorized it. You guys have enough experience and general knowledge that you can take educated guesses and often be right!
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