RM 320W Exam 2 questions with
complete solutions
Topic 4: Insurance Regulation - correct answer ✔✔
Reasons for Insurance Regulation - correct answer ✔✔1. Maintain insurer solvency
2. Compensate for inadequate consumer knowledge
3. Ensure reasonable rates
4. Make insurance available
- Worker compensation insurance
Automobile insurance
Homeworkers insurance
History of Insurance Regulation - correct answer ✔✔*Paul v. Virginia 1868*
- Landmark legal decision that established the right of the states to regulate insurance
- Samuel Paul was an agent in Virginia who represented NY insurers.
- Decision: The Supreme Court ruled that issuance of an insurance policy _was not interstate commerce_
and therefore, the insurance industry was not subject to the commerce clause of the Constitution
(Insurance not interstate commerce)
*South-Eastern Underwriters Association Case*
- The precedent set in Paul v. Virginia, which held that insurance is not interstate commerce, was
overturned by the Supreme Court in 1944.
- The *South-Eastern Underwriter's Association (SEUA)* was a cooperative rating bureau that was found
guilty of price-fixing and other violations of the Sherman Antitrust Act.
- Insurance is _interstate commerce_ when conducted across state lines and was subject to federal
regulation.
- This led to turmoil for the industry and state regulators. (Led to serious doubts concerning the legality
of the private rating bureaus, and the power of the states to regulate and tax the insurance industry.)
,(Insurance is interstate commerce and led to McCarran-Ferguson Act)
*McCarran-Ferguson Act*
- The McCarran-Ferguson Act states that continued regulation of the insurance industry by the states is
in the public interest.
- It also states that to the extent that state regulation is in effect, federal antitrust laws will not apply to
insurance with an exception of forbidding any acts or agreements to BOYCOTT, COERCE, OR INTIMIDATE,
and insurers are still subject to this law.
- At present, the state still has the primary responsibility for insurance regulation although Congress can
pass laws regarding insurance.
- If Congress repealed the McCarran-Ferguson Act, the federal government will have primary authority
over the entire insurance
Paul v. Virginia (1868) - correct answer ✔✔- Landmark legal decision that established the right of the
states to regulate insurance
- Samuel Paul was an agent in Virginia who represented NY insurers.
- Decision: The Supreme Court ruled that issuance of an insurance policy _was not interstate commerce_
and therefore, the insurance industry was not subject to the commerce clause of the Constitution
(Insurance not interstate commerce)
South-Eastern Underwriters Association Case - correct answer ✔✔- The precedent set in Paul v. Virginia,
which held that insurance is not interstate commerce, was overturned by the Supreme Court in 1944.
- The *South-Eastern Underwriter's Association (SEUA)* was a cooperative rating bureau that was found
guilty of price-fixing and other violations of the Sherman Antitrust Act.
- Insurance is _interstate commerce_ when conducted across state lines and was subject to federal
regulation.
- This led to turmoil for the industry and state regulators. (Led to serious doubts concerning the legality
of the private rating bureaus, and the power of the states to regulate and tax the insurance industry.)
(Insurance is interstate commerce and led to McCarran-Ferguson Act)
McCarran-Ferguson Act (1945) - correct answer ✔✔- The McCarran-Ferguson Act states that continued
regulation of the insurance industry by the states is in the public interest.
, - It also states that to the extent that state regulation is in effect, federal antitrust laws will not apply to
insurance with an exception of forbidding any acts or agreements to BOYCOTT, COERCE, OR INTIMIDATE,
and insurers are still subject to this law.
- At present, the state still has the primary responsibility for insurance regulation although Congress can
pass laws regarding insurance.
- If Congress repealed the McCarran-Ferguson Act, the federal government will have primary authority
over the entire insurance industry.
The Glass-Steagall Act (or Banking Act of 1933) - correct answer ✔✔- Response to the collapse of much
of the banking system which was associated with the Great Depression.
- It prohibited financial institutions from engaging in more than one or more of the following businesses:
(1) Commercial Banking, (2) Investment Banking, and (3) Insurance
Gramm-Leach-Billey Act (GLBA) - correct answer ✔✔Passed in 1999, repealed the Glass Steagall Act
- Since then holding companies can engage in commercial banking, investment banking and insurance at
the same time
- Citigroup had been given a temporary waiver of Glass-Steagall In 1998 when it bought Travelers
Insurance Group. Congress passed this law a year later
- Some believe that it lead to the financial crisis of 2008 and that Glass-Steagall should be reinstated.
Regulation of Financial Holding Companies - correct answer ✔✔- Just prior to the financial crisis of 2008,
firms designated as financial holding companies (engaged in more than one of the following activities:
investment banking, commercial banking and insurance) were loosely regulated at the holding company
level.
- Could game system to effectively choose the weakest of potential regulators
Ex) AIG had small thrift (savings bank) and chose Office of Thrift Supervision (not up to task)
- Insurance subsidiaries still regulated by insurance regulators.
What Areas Are Regulated? - correct answer ✔✔1. Formation and Licensing of Insurers
2. Solvency Regulation
3. Rate Regulation
4. Policy Forms
5. Sales Practices and Consumer Protection
complete solutions
Topic 4: Insurance Regulation - correct answer ✔✔
Reasons for Insurance Regulation - correct answer ✔✔1. Maintain insurer solvency
2. Compensate for inadequate consumer knowledge
3. Ensure reasonable rates
4. Make insurance available
- Worker compensation insurance
Automobile insurance
Homeworkers insurance
History of Insurance Regulation - correct answer ✔✔*Paul v. Virginia 1868*
- Landmark legal decision that established the right of the states to regulate insurance
- Samuel Paul was an agent in Virginia who represented NY insurers.
- Decision: The Supreme Court ruled that issuance of an insurance policy _was not interstate commerce_
and therefore, the insurance industry was not subject to the commerce clause of the Constitution
(Insurance not interstate commerce)
*South-Eastern Underwriters Association Case*
- The precedent set in Paul v. Virginia, which held that insurance is not interstate commerce, was
overturned by the Supreme Court in 1944.
- The *South-Eastern Underwriter's Association (SEUA)* was a cooperative rating bureau that was found
guilty of price-fixing and other violations of the Sherman Antitrust Act.
- Insurance is _interstate commerce_ when conducted across state lines and was subject to federal
regulation.
- This led to turmoil for the industry and state regulators. (Led to serious doubts concerning the legality
of the private rating bureaus, and the power of the states to regulate and tax the insurance industry.)
,(Insurance is interstate commerce and led to McCarran-Ferguson Act)
*McCarran-Ferguson Act*
- The McCarran-Ferguson Act states that continued regulation of the insurance industry by the states is
in the public interest.
- It also states that to the extent that state regulation is in effect, federal antitrust laws will not apply to
insurance with an exception of forbidding any acts or agreements to BOYCOTT, COERCE, OR INTIMIDATE,
and insurers are still subject to this law.
- At present, the state still has the primary responsibility for insurance regulation although Congress can
pass laws regarding insurance.
- If Congress repealed the McCarran-Ferguson Act, the federal government will have primary authority
over the entire insurance
Paul v. Virginia (1868) - correct answer ✔✔- Landmark legal decision that established the right of the
states to regulate insurance
- Samuel Paul was an agent in Virginia who represented NY insurers.
- Decision: The Supreme Court ruled that issuance of an insurance policy _was not interstate commerce_
and therefore, the insurance industry was not subject to the commerce clause of the Constitution
(Insurance not interstate commerce)
South-Eastern Underwriters Association Case - correct answer ✔✔- The precedent set in Paul v. Virginia,
which held that insurance is not interstate commerce, was overturned by the Supreme Court in 1944.
- The *South-Eastern Underwriter's Association (SEUA)* was a cooperative rating bureau that was found
guilty of price-fixing and other violations of the Sherman Antitrust Act.
- Insurance is _interstate commerce_ when conducted across state lines and was subject to federal
regulation.
- This led to turmoil for the industry and state regulators. (Led to serious doubts concerning the legality
of the private rating bureaus, and the power of the states to regulate and tax the insurance industry.)
(Insurance is interstate commerce and led to McCarran-Ferguson Act)
McCarran-Ferguson Act (1945) - correct answer ✔✔- The McCarran-Ferguson Act states that continued
regulation of the insurance industry by the states is in the public interest.
, - It also states that to the extent that state regulation is in effect, federal antitrust laws will not apply to
insurance with an exception of forbidding any acts or agreements to BOYCOTT, COERCE, OR INTIMIDATE,
and insurers are still subject to this law.
- At present, the state still has the primary responsibility for insurance regulation although Congress can
pass laws regarding insurance.
- If Congress repealed the McCarran-Ferguson Act, the federal government will have primary authority
over the entire insurance industry.
The Glass-Steagall Act (or Banking Act of 1933) - correct answer ✔✔- Response to the collapse of much
of the banking system which was associated with the Great Depression.
- It prohibited financial institutions from engaging in more than one or more of the following businesses:
(1) Commercial Banking, (2) Investment Banking, and (3) Insurance
Gramm-Leach-Billey Act (GLBA) - correct answer ✔✔Passed in 1999, repealed the Glass Steagall Act
- Since then holding companies can engage in commercial banking, investment banking and insurance at
the same time
- Citigroup had been given a temporary waiver of Glass-Steagall In 1998 when it bought Travelers
Insurance Group. Congress passed this law a year later
- Some believe that it lead to the financial crisis of 2008 and that Glass-Steagall should be reinstated.
Regulation of Financial Holding Companies - correct answer ✔✔- Just prior to the financial crisis of 2008,
firms designated as financial holding companies (engaged in more than one of the following activities:
investment banking, commercial banking and insurance) were loosely regulated at the holding company
level.
- Could game system to effectively choose the weakest of potential regulators
Ex) AIG had small thrift (savings bank) and chose Office of Thrift Supervision (not up to task)
- Insurance subsidiaries still regulated by insurance regulators.
What Areas Are Regulated? - correct answer ✔✔1. Formation and Licensing of Insurers
2. Solvency Regulation
3. Rate Regulation
4. Policy Forms
5. Sales Practices and Consumer Protection
