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CPCU 520 Chapter 2

CPCU 520 Charter 2 Insurance Regulations

TermDefinition
National Association of Insurance Commissioners (NAIC) an association of insurance commissioners whose purpose is to coordinate insurance regulation activities among the various state insurance departments
Model Law a document drafted by the NAIC, similar to a statute, that reflects the NAIC's proposed solution to a given problem/issue and provides a common basis to the states for drafting laws that affect the ins industry.
Model Regulation a draft regulation that may be implemented by a state insurance department if the model law is passed.
Domestic insurer an insurer doing business in the jurisdiction in which its incorporated
Foreign insurer an insurer licensed to operate in a state but incorporated in another state
Alien insurer an insurer domiciled in a country other than the United States
Paid-in surplus the amount stockholders paid in excess of the par value of the stock.
Reciprocal insurer owned by it's policyholders, formed as an unincorporated association to provide coverage to its members and managed by an attorney-in-fact. Members agree to insure each other; share in profit/losses @ same proportion
Insolvency when current liabilities (as opposed to its total liabilities) exceeds its current assets
Guaranty Fund state-established fund that provides a system for the payment of some of the unpaid claims of insolvent insurers; generally funded by assessment collected from all state licensed insurers
Good-faith claims handling the manner of handling claims that requires an insurer to give consideration to the insured's interest that is at least equal to the consideration it gives its own interests
Bad faith a breach of duty of good faith and fair dealing
Reasons for insurance regulation to protect consumers, to maintain insurer solvency and to prevent destructive competition
Maintain insurer solvency insurance provides future protection, protect the public interest, insurers have a responsibility to insureds, insurers have become insolvent despite regulatory reviews
NAIC's Financial Regulation Standards and Accreditation Program state's ins laws/regulations must meet basic standards of NAIC model; state regulatory methods must be acceptable to NAIC; state's ins dept practices must be adequate as defined by NAIC
International Insurers Department (IID) standards Capital and surplus requirements; trust fund requirements; biographical affidavits from the directors/officers of the insurer; annual filing of insurer's audited financial statement
Regulatory reporting, disclosure and transparency insurers are regulated to file standardized reports quarterly/annually to assess insurer's risk & financial condition. Contain qualitative & quantitative info; updated to incorporate significant risks
Off-site monitoring and analysis assess financial condition as of the valuation date & to identify and assess current & prospective risk through risk-focus surveillance. results in insurer profile. Off-site tools maintained by NAIC
On-site risk-focused examinations on-site examinations evaluating corporate governance, mgmt oversight, financial strength. system of risk identification and mitigation on a current and prospective basis
Reserves, capital adequacy, and solvency insurers required to maintain reserves & capital at all times and to provide an adequate margin of safety. Risk-based capital (RBC) calculation uses a standardized formula to benchmark specific level of regulatory actions for weakly capitalized insurers
Regulatory control of significant, broad-based, risk-related transactions/activities licensing requirement, change of control, the amount of dividends paid, transactions with affiliates, reinsurance
Preventive and corrective measures, including enforcement regulatory takes preventive and corrective measures (timely, suitable and necessary) to reduce the impact of risks identified in on and off-site regulatory monitoring
Exiting the market and receivership legal/regulatory framework defines a range of options for the orderly exit of insurers from the marketplace. Solvency is defined and receivership scheme established to ensure payment of insureds obligations
Reasons for insolvency rapid premium growth, inadequate insurance rates, inadequate reserves, excessive expenses, lax controls over MGAs, uncollectible reinsurance, fraud
Regulation insurance policies ensure rates are adequate, not excessive, not unfairly discriminatory
Type of Rating Laws Prior-approval laws, File and Use laws, Use-and-File Laws, no filings laws, flex rating laws
Market Conduct Surveys focus producer practices, underwriting practices, claims practices
Market analysis enables regulators to identify general market disruptions, promotes uniform analysis by applying consistent measurements between insurers and facilitates communication and collaboration among regulators from different states
Fundamental components the collection of regulatory information from insurers using the Market Conduct Annual Statement. Allows regulators to monitor, benchmark, and analyze the ins market in almost every venue
Created by: CHahnCPCU