Porter.5-Opns-State

Porter Chapter 5, State Department of Insurance Operations, covers the various functions of the state DOI. The most important subtopic concerns types of filing laws (prior approval, file & use, use & file, no-file.)

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Study Tips

This is another chapter you could probably skip entirely. I was able to answer the past exam questions without having looked at Porter Chapter 5 at all. If you want to study this chapter, you can do it in under 30 minutes.

BattleTable

Based on past exams, the main things you need to know (in rough order of importance) are:

• types of rate filings
• functions of the state DOI (Department of Insurance)

reference	part (a)	part (b)	part (c)	part (d)
E (2015.Fall #2)	disapproved filing: - reasons	no-file laws: - argue FOR	SCENARIO: - types of rate filings

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In Plain English!

Basic Information

The main question from this chapter is this:

Question: what in the world does the state DOI do (DOI = Department of Insurance)

• Well, it turns out they do a lot of things the public doesn't normally think about. The text lists 9 functions and I've put them into 3 groups because that makes them easier for me to remember:

Group 1: licensing & regulation

   - licensing of insurers (for insurers doing business in their state)

   - licensing of producers (sellers may have to pass exams, pay licensing fees, perform continuing education)

   - regulation of rates & coverages (see below for 4 types of rate filings)

   - regulation of claims adjusters (market conduct exams may include claims adjusting & settlement practices)

Group 2: insurer solvency

   - financial exams (includes financial statements, IRIS,...)

   - monitor sale of insurance securities (stocks, bonds, real estate, loans)

   - determine need for receivership (either rehabilitation or liquidation of an impaired insurer)

Group 3: other services

   - fraud prevention (NAIC has an online fraud reporting system)

   - consumer services (education, complaint resolution)

Let's go into a little more detail on the Group 1 item of rate regulation:

Question: briefly describe the 4 types of rate regulation

• These are listed from strongest regulation → weakest regulation:

prior approval: rates must be approved before use (use varies by line of business)

file & use: rates must be filed before use

use & file: rates may be used immediately but must be filed within a specified time frame (like 30 days)

no-file: rates may be used without filing (sometimes called open competition)

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Types of Insurance Companies

This is something you should have in your general knowledge because it could affect regulatory treatment. For example, an alien insurer may have higher capital requirements because state regulators may have less access to this insurer's operations.

Question: what are some of the different ownership structures of insurance companies

stock company:

• owned by stockholders, goal is to make a profit for stockholders (policyholders do not share in profits)
• this is the most common ownership structure in the U.S.

subsidiary:

• more than 50% of stock owned by a parent company or holding company
• parent is not necessarily another insurer (could be a bank)

mutual company:

• owned by policyholders, dividends are paid to policyholders at the discretion of management/BoD
• often fill an unmet need, can be small & local or large & international
• this is the most common ownership structure globally

reciprocal companies:

• owned by policyholders, managed by attorney-in-fact, each member covers the risk of other members
• similar to mutual companies except:

   - reciprocals transfer risk to other subscribers

   - mutuals transfer risk to the organization

risk-retention group, captive:

• see GAO.Report

foreign insurer:

• an insurer domiciled in another state (not another country)
• can be stock, mutual or reciprocal companies

alien insurer:

• an insurer domiciled in another country
• can be stock, mutual or reciprocal companies

That's all I think you need to know. (If you're worried, you can scan the source reading. Let me know if you find anything.)

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